WHEN IS A BUSINESS READY FOR A GENERAL MANAGER? THE FINANCIAL SIGNALS THAT SAY YES
- Vision Brokers
- Oct 9
- 4 min read
A General Manager (GM) hire is arguably the best move a business can make to build a sustainable, more valuable asset for the proprietor. Everything changes with a GM role.
Yes, the cost base increases, though what the owner receives in return is a true business asset. A business that runs largely independently of them.
This is where real freedom comes for SME owners. Freedom to take more time off, freedom to focus on strategy, not weeds. And most importantly, a significantly higher valuation due to the removal of the owner's Key Person risk.
It’s a huge milestone for any owner. However, the decision to introduce a GM role should be carefully considered.
In this email, we’ll dive into the key operational and financial signals.
We see a lot of businesses that could and should be run with a GM. Let's break this down.
Operational Signals - The Core Principle
A General Manager should drive the team’s productivity, performance, and be the echo layer between the core team and the owner. Here are the signals that the business is being starved:
1. The Owner Has Become the Bottleneck. When every decision, approval, and escalation flows through the owner, the business becomes dependent on one person, and that person is already at capacity. If the owner is constantly pulled into operations instead of leading from above, the business has outgrown its management structure.
2. Strategy Is Taking a Back Seat. It’s easy to tell when a business is not being led. The owner spends too much time in reactive mode in the day-to-day. Dealing with staff issues, handling production or service delivery problems directly and fixing gaps.
3. Strong Ship without a Captain. Before any GM hire, there should be three fundamental roles in place:
a) A Salesforce
b) A Marketing Role
c) A Bookkeeping Role
5. Growth Has Plateaued. When a business hits a revenue ceiling, it’s rarely about market opportunity. More often, it’s a leadership bandwidth issue. If the owner simply can’t drive it further without burning out, it’s time to add management depth.
Financial Signals - The Core Principle
A General Manager should be funded by profit. The GM’s salary should be paid for out of existing profit and without eating into the owner’s personal drawings, debt service, or essential cash reserves.
If hiring one requires cutting corners or increasing debt, it’s too soon, and the owner should focus on their next core team hire (in most cases, a salesforce).
This is where numbers bring clarity.
GM Affordability Formula
Required Operating Profit (before GM) ≥ GM Total Annual Cost ÷ Target Profit Margin %
Or more practically expressed as:
GM Total Cost should represent no more than 25% of your average annual operating profit.
Example
Business: $5 million annual revenueGross Profit Margin: 55%Operating Profit (EBITDA): $500,000 (10%)Proposed GM Salary + On-Costs: $180,000
Now test it:
$180,000 ÷ $500,000 = 36% of current operating profit.
→ Too high. The business can’t afford the GM yet.
Business: $5 million annual revenue
Gross Profit Margin: 55%
Operating Profit (EBITDA): $750,000 (15%)
Proposed GM Salary + On-Costs: $180,000
$180,000 ÷ $750,000 = 24% of current operating profit.
→ That’s in range. The business can absorb the hire and maintain healthy profitability.
In other words:
If the GM’s cost consumes under 25% of annual profit, it’s affordable.
If it consumes over 25%, it’s likely premature.
Other Considerations
Beyond profitability, there are a couple of other prudent fundamentals to follow Business should have at least 6 months of the GM’s total cost in available cash reserves.
Have a history of Consistent Operating Profit, over 12+ months. There needs to be a foundation of predictability.
Positive Cash Flow: Regular surplus after tax, debt, and owner drawings.
Stable Gross Margins: Reliable revenue and cost structure (no volatility month to month).
Growth Investment Capacity: The business is already reinvesting profit in marketing, people, or systems, and can extend that to leadership.
Simple GM Formula
Test the decision with this quick framework:
Calculate: GM Total Annual Cost.
Compare: That cost as a % of 12 months' operating profit.
Check: 6 months of cost in available cash reserves.
Model: A conservative forecast showing the business can maintain profitability with the GM included.
General Manager Affordability Calculator | |
Annual Revenue ($) | 5,000,000 |
Gross Profit Margin (%) | 55 |
Operating Profit (EBITDA) ($) | 500,000 |
Proposed GM Salary ($) | 150,000 |
GM On-Costs (Super, Tax, Benefits) ($) | 30,000 |
Total GM Cost ($) | 180,000 |
GM Cost as % of Operating Profit | 36 |
Target Profit % (Minimum 10%) | 15 |
6-Month Cash Buffer Required ($) | 90,000 |
Affordability Check (OK if <15%) | Too Early |
If the business can sustain these metrics while keeping net margins above 8–10%, the numbers support the move. Founders who have transitioned their businesses to a GM structure realise a more sustainable business, with more freedoms.
The Effect on Business Value
Here’s the kicker. The business is more valuable, with a lower operating profit with a GM in place.
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