The $94M lightbulb moment

Anthony and I probably watch more TV between Jan 1 and Mar 31 than we do during the entire rest of the year. It’s usually really, really cold and I really, really hate winter.  

What are we watching?  Well, right now, it’s Oscar season so we’ve seen most of the nominees for Best Picture.

One really stood out for me this year was Hamnet.  

It’s a moody, period piece and - I won’t give too much away - but the main character has a major “lightbulb” moment at the end (yes, you will 1000% need Kleenex). This moment is so impactful for her that it completely changes how she views her entire life.

Interestingly, I’ve seen a similar kind of lightbulb moment happen with business owners when we run a break-even calculation for their second location (stay with me haha).

Most owners eventually ask the same question:

“How much $$ do I have to earn here just to cover my costs?”

Let’s take an example.  Imagine you own a wealth management firm that started in Winnipeg and you’re thinking about expanding to Brandon. 

The fixed costs of the potential new location probably look something like so:

• Advisor comp $250k

• Associate comp $90k

• Admin comp $65k

• Dealer payout $120k

• Office rent $70k

• Professional fees $20k

• Other annual fixed costs $185k (mktg, insurance, supplies, tech etc)

Total fixed costs: $800,000.

If the average advisory fee is 0.85%, we calc break even like this:

Break even assets under management = fixed costs / advisory fee rate

In this example, you need $94M of AUM just to break even ($800,000/.0085).  

That, my friend, is your lightbulb moment. You’ve answered exactly how much you need to earn to cover your costs. 

And we both know that $94M of AUM doesn’t magically appear overnight. Which leads to my next question:  How long are you willing to fund losses while you build toward that number?

Two years?

Five years?

Seven?

Running a simple break-even calculation like this can completely change how an expansion decision is evaluated and rolled out (or not).

So, before signing that second lease or hiring an associate advisor, it’s worth modelling a few scenarios so you understand how the numbers will actually play out over time.

And just like the (heartbreaking) moment at the end of Hamnet, once you see the reality clearly, it’s very hard to look at the situation the same way again.

If your business is at the size where you're ready to start making better financial decisions - as in, ones based on numbers, not gut feel - let’s chat.