If you’re a business owner, you’re probably thinking about your prior year profitability. Were you as profitable as you had expected or were your sales down? You may be wondering how the prior year will affect your financial future. If you’re wondering these things you’re not alone and it’s actually good news! Starting the year off right with a financial plan helps ensure that your goals will more likely be a reality than a dream.
Start the planning process now
If you have not prepared a financial forecast or budget, now’s the time to start. You can ask your accountant to help you prepare one or prepare one yourself. To start, first create a list of your monthly recurring expenses. List them out by type (i.e. – advertising, utilities, etc.). If you have employees, create a chart that shows their total monthly average wages. When you’re done you will have a list of your ongoing recurring expenses and their costs. Don’t forget to include costs like payroll taxes and insurance benefits.
From there you can look at your prior year sales. Forecasting sales can be a bit trickier. Unlike known expenses, sales revenue is always a variable so I recommend a conservative approach. Do you have seasonal trends in sales? Did you have an increase or decrease in sales growth? You can look at your historical sales to determine your future sales.
Lastly, you will need to determine your cost of goods. If you sell product or include labor in your cost of goods this is an important part of your budgeting process. Don’t forget to include these costs. It’s important.
Consider future initiatives
Now that you have a simple forecast for your sales revenue, cost of goods and fixed expenses you can get an initial idea of your profitability.
- Take your sales revenue and subtract your cost of goods. This figure gives you your gross profit.
- You then take your gross profit and subtract your recurring expenses. This will provide you with your net income.
- Now, you have to consider what your goals are for the New Year. Will you be spending more in marketing for a new promotion? Will you be hiring for a new position? Any changes will need to be added to your forecast. This will provide you with a revised net income.
Depending on the number you may be excited or upset. But this knowledge is now your strength because it provides you with the opportunity to make changes.
How To Get Help
Preparing an accurate forecast is essential for any business. You need to have a plan, without one you are operating blind. Especially important is measuring your actual financial performance to your projections. In my opinion, every business owner should have this vital information. The advice and assistance from an accountant can be invaluable in helping you reach your goals. It’s never too late to start planning for the future. At Rock Creek Consulting Group, we will begin holding workshops to help with this topic and others. To be notified about upcoming workshops, go to: www.rockcreekcg.com, scroll about half way down the page, and click the “Subscribe Now” button under the “Stay Updated” section.