A question for all business owners: are you bringing in revenue for today, or are you working hard for tomorrow?
Just like any aspect of business, finding the perfect balance is the key.
Unfortunately, most business owners are more focused on managing daily operations and ensuring there’s enough money just to get by. It’s easier to be fixated on short-term revenue because the rewards here are more obvious than making investments today for the future.
However, to be able to make progress towards your overarching financial goals and ensure the growth of your business, you also need to start looking at opportunities and allocating resources into projects that will generate revenue in the medium to long run, too.
Understanding these three horizons of revenue generation, including the best ways to optimise your funds around them, is critical for all business owners.
Here’s what you need to know.
What are the three horizons of business revenue generation?
The three time horizons span different periods of your business. The objective is to consider how it will be earning income this year (horizon 1 – short-term), in a couple of years (horizon 2 – medium-term) and further down the track (horizon 3 – longer-term).
Through these three time horizons of money, you will be able to categorise your different growth opportunities. They can also help determine which activities or projects are worth investing in to ensure long-term success without neglecting the present.
To demonstrate this, here’s how I explain it to my Business Coach clients:
- Horizon 1: 1 to 2 years
The first horizon is about defending and expanding the current business. Your goal at this point is to supercharge the performance of your established operations, ensuring that you’re aggressively earning customers and increasing efficiencies through effective systems and processes.
Horizon 1 is where you distinguish your core business which generates most of your cash today. Identifying your biggest assets is also recommended to appreciate what drives value into your organisation.
For horizon 1, you should allocate around 70% of your budget. This will ensure that you have enough resources to keep the business up and running.
- Horizon 2: 3 to 5 years
On the other hand, horizon 2 revolves around investigating emerging new business opportunities. This is the perfect time to foster ideas that can help you drive alternative streams of revenue.
Horizon 2 centres on innovation to bridge the gap between where you are now and where you want to be in the future. You should invest around 20% of your budget into this phase to gain substantial profits that will further drive business growth.
- Horizon 3: 5 years and more
Lastly, we have horizon 3 which involves seeding future businesses. It encompasses visionary projects, innovative ventures and fresh initiatives that don’t yet exist in the present.
Your focus at this stage is to secure more long-term success. You can encourage your team to go on strategic offsites, undertake research projects, meet experts in different fields and contribute creative ideas.
The activities in horizon 3 are all aimed to safeguard the business against disruptions in the future, meaning they can also be quite uncertain and risky. This is why you should only invest around 10% of your budget or resources here.
Remember that all these three horizons must be addressed concurrently to achieve the perfect balance of resource allocation and productive use of revenue.
By planning your strategies around these three horizons, you will also be able to sustain your business whilst taking the right steps to ensure its ongoing success today, tomorrow and into the future.
How can your business spend its resources to generate revenue?
As you’ve read, money must be effectively managed for both today and tomorrow.
The question now is – how do you get that balance right? How will you maximise activities and the returns they bring?
Here’s a quick model to guide you.
- Is it giving you money today? NO. Will it give you money tomorrow? YES.
If something is currently unprofitable but can earn you money in the future, then it’s considered an idea. Time, effort and resources must be utilised to develop it and ensure that it will eventually augment the business.
- Is it giving you money today? YES. Will it give you money tomorrow? YES.
Meanwhile, if you have an activity that generates money today and tomorrow, you must continuously fuel it to accelerate business’ growth. This is a core activity that brings consistent returns to your business.
- Is it giving you money today? YES. Will it give you money tomorrow? NO.
On the other hand, an activity that provides money in the present but is not sustainable is your business’ cash cow. By “milking” money from it, your business can meet current expenses and fund other projects.
- Is it giving you money today? NO. Will it give you money tomorrow? NO.
Lastly, if you have some business activities that are not making money today, it’s time to work on evaluating them to see where things are going wrong. If they won’t be able to earn money for your business even in the future, then it will be a better option to eliminate these activities and reallocate resources to other profitable initiatives.
Here’s a challenge for you – as a business owner
Now that you are aware of the three horizons of revenue generation and the different ways to utilise your resources:
- Can you effectively allocate time, money and people to build future revenue streams?
- How will you invest to address your business’ own challenges and threats?
- What will you use your money for to tap into your business’ strengths and take advantage of the available opportunities?
Let me guide you in managing your revenue effectively today for tomorrow
As a Business Coach and Mentor, I can help you map out these three horizons of revenue generation to enable you to achieve business growth and success.
I work with business owners like you by providing tailored advice on how you can reach your goals – the right way.
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