Despite a job market full of unique challenges, My Small Business Pro was incredibly fortunate to bring on a new team member last year, Eileen Manaloto. Like many small businesses, we got creative in finding the right resource to support our amazing clients and fit...
Back to the Financial Future!
A new year is upon us! While there’s a tendency to charge into 2022 with new hopes, plans and goals; but you need to pump the brakes. One of the most prudent things you can do is slow down and take some time to do a serious review of your past. Last year is full of gems of knowledge, important lessons, and incredibly valuable data. Don’t let it go to waste!
Here are the most important lessons and information to look for as you dive into deep reflection before you even begin to think about the future:
What does it take to run your business?
Measuring success by your bank account is not a sustainable strategy. It’s wise to have a look at your expenses by month. You need to understand what it takes to keep the lights on and what it takes to deliver your products or services. Or as accountants like to say, “Do you know what your Overhead is or Cost of Goods Sold are?”. These are the critical numbers around which to plan your year.
Use this data to set strong profitability goals, identify where you can save and what plans you need to make for growth. Growth can mean the need to invest in more space, tools or team members, so understanding what growth looks like will help you be more strategic and intentional about spending.
What are your income goals?
When you started your business, you probably had visions of money rolling in and early retirement. For that to happen, you’re going to need to sell a lot, but how much?
When you have an income number in mind, it’s best to reverse engineer your business activities to ensure you can get to that number. Understanding your profit margin and overhead will allow you to back into a sales number that will get you to that goal. Don’t make the mistake of setting an income goal, and despite growing sales and revenue only to get disappointed when that doesn’t translate to your bottom line income.
What are the trends?
Looking at a year (or two) of data will tell you how to prepare for the coming year. Maybe your customers buy during certain times of the year. Maybe your expenses fluctuate. Understanding how your business ebbs and flows allows you to plan, budget, save or invest at critical times to maximize your operation. Have you run your P&L Comparison to the previous year? Use this data to your advantage and incorporate it into your plan.
What should you charge?
Pricing is tricky as it takes into consideration two key factors – how much are your customers willing to pay and what does it cost to produce your products or services? Fortunately, your data will dictate 50% of this formula. Having a clear understanding of what it costs for you to fulfill customer requests enables you to create a sustainable business. With this quickly evolving world (supply chain issues, labor shortages and more) it’s important to ensure you are pricing yourself to stay in business.
No business can survive if it can’t produce a profit. For example, after reviewing a recent client’s books we realized that their costs of goods sold increased by 30%. Although they sold more than last year, they were not able to increase their net income. After some difficult conversations and some planning, we were able to raise their prices to a level their customers were willing to pay and would keep the business thriving.
Business owners are always looking towards the horizon of possibilities. But looking in the rearview mirror can help you be more in control of your future.
If you’re not confident in your numbers, or maybe you were putting it off until the VERY last second, now is the time to pay attention. For you to make strategic, sound and excellent business decisions, the very best thing you can do is base those decisions in reality. The cold hard facts tell you the truth and illuminate your path forward. Choose not to use this information and you’ll spend the year stumbling along hoping for success.
If you’re struggling to find these gems of wisdom, or aren’t sure if your data is reliable, please reach out. Our consultative and detail-orientated approach ensures our clients are not only prepared for the future, but are able to learn from the past. Contact My Small Business Pro for a consultation.
What solution can Fritz Financial find for you?
Schedule a meeting with Daliah Fritz