At the end of the year, in the midst of all the celebrations, many of us are already looking ahead to the new year. We get excited about resolutions, goals and plans: ready for a “new year, new me.” For business owners, that goal setting becomes even more important. Aside from the typical focus on self improvement, your goals likely focus on improving your business — your livelihood. It can feel overwhelming! Scott Scarano, owner of Padgett Business Services of Raleigh-Durham has gathered a few tips and considerations to help you start the new year on the right foot.
When starting to plan or meeting with a financial advisor, you should always “bring your true and authentic self first,” Scott says. Come into your planning session with your current reality: bring in accurate financial records, tax records and business documents. Numbers tell a story, and it’s important to see what your story currently is before trying to change it. Don’t try to gloss over problems you encountered, or you won’t be able to properly address and fix them.
Identify pain points.
Review your past year and look for things that didn’t quite work for you. Where did things go wrong? Try to work backwards to the root cause of the problems. “And then be prepared to go through the pain of change,” Scott adds, “because change is painful, too.” Recognize that doing something differently will take adjustment, and benefits may not be reflected quickly. But if you’re stuck in a bad situation, making steps toward fixing what you can is worth it.
Create a budget or financial forecast.
You may be used to budgeting, but a forecast is a little bit different. Both use past data to predict future spending, but each take a slightly different approach. When creating a budget, you typically use information from prior years to estimate the next year’s revenue and how you want to spend it. It’s a very goal-oriented way of tracking your finances. Forecasting, on the other hand, is more oriented in reality. A forecast aims to accurately predict your finances. What do you expect incoming cash flow to look like? What expenses do you know will come? What potential extra expenses can you prepare for? It’s important to get a different perspective when you’re making your budget or forecast, so consider bringing in someone outside your team to see things from their point of view. “A lot of times you do need advice from a third party to create a forecast,” Scott says, so try talking to an accountant or financial advisor.
Define your goals and KPIs.
Start by reviewing your goals from the past year. What did you achieve? What can you continue working towards or improve on in the future? Consider the element of control. Think about who currently has control over your situation, and how much of that control you want to be in your own hands. Set your goals accordingly. Once you have your goals, it’s time to define your key performance indicators, or KPIs. Common KPIs can include things like profit margins, customer retention, website traffic, and gross revenue. Other performance indicators you may want to consider if you’re looking to grow your business and improve your lifestyle are cash to owner, owner days off, and employee head count.
Develop your annual plan.
It’s time to put it all together and develop a plan for your coming year. And remember to include your team in planning, especially when it affects them as well. They can help you consider things you might not have thought of on your own. Some things you may want to include are:
- Revenue streams and direct costs associated with them
- Your direct staff (those that provide the goods or services you sell) and indirect staff (those who generate overhead expenses such as admin work)
- All operating expenses: rent, utilities, technology, supplies, etc.
- Profit sharing
- Assets and liabilities
- Taxes and deductions
- Cash flow assumptions and any needs for financing
- Benchmarks against competitors and similar industries
Don’t forget to recognize what’s working well! “If everything is going well, and you’re not dissatisfied with the way things are going, then things shouldn’t change,” Scott says, “but they should still be managed.” Practice gratitude as you go — celebrate your wins, don’t focus only on losses. Hopefully, by next year, you’ll have even more wins to cheer about.
Remember that planning shouldn’t be something you only do at the start of the year. Revisit your plans, goals, and KPIs quarterly or even monthly to evaluate your progress and stay on track. “Review, adjust, and then move forward,” Scott says. If you need help preparing your business for the new year, Padgett is here. You’ll find a partner who understands you and your business and can provide you with personalized advice to help you succeed. Find a local Padgett office near you today!