As business owners, we spend a lot of time looking to the future. Where are we headed? What are our goals for the next quarter, year or five years? What we don’t do a lot of is looking in the rearview mirror. Yet, doing so can provide valuable insights into what we’re doing right and where we need to course-correct.
Your business finances are one area that would benefit from a year-end review. Let’s get started.
Create a values-centered business plan
It’s easy to get lost in accounting jargon and KPIs (key performance indicators) when you conducting reviews, but remember that your company has an important job to do.
“You help people. ‘How much did we help’ is, therefore, the most important question to answer during a year-end review,” Katherine Pomerantz, money mentor, said.
She also said that having a values-centered business plan can ensure that you keep that goal at the center of all you do.
In your business plan, make sure you address:
- Your company’s mission
- Your vision for your company’s future
- The values that make you and your team unique
“Reviewing this information before you dig into your financial statements will help you translate your numbers and identify your most important metrics,” Pomerantz said. “It will also make bookkeeping less boring. It’s easier to tackle tedious tasks like tax prep if you understand the larger financial mission of your company.”
Related: How to Draft a Business Plan for Your Startup
Get your financial footing for next year
Carolyn Walters, owner of Financial Solutions in Greensboro, North Carolina, said it’s important to see where your financials are before business begins in the new calendar year.
“Are there any business purchases that can be made before the end of the year? Is it possible to defer income to 2020? Is a retirement plan in place that can benefit owners, partners or shareholders?” Walter said.
Purchasing anything your business needs before year’s end will increase your business expenses for the year, while deferring income until next year, and will keep your taxable revenues lower for 2019. A retirement plan like an IRA may be tax-deductible, which may reduce what you pay in taxes.
Button up your invoicing strategy
Review your accounts receivables, while you’re at it. If you struggled to get your clients to pay their invoices on time in 2019 (39 percent of invoices are paid late, so it’s likely you’ve experienced this), make a New Year’s resolution to reduce or eliminate that headache.
Make sure your invoice payment policy is clearly listed on your invoices. If you want payments Net-30 (payment due in full within 30 days), make sure your invoice says so in an obvious location. And if you’re changing your payment terms in the New Year, send an email to all clients notifying them ahead of time.
If you have any clients who insist on paying so late that it jeopardizes your own cash flow, consider implementing a late payment policy. Any invoice paid after 30 days, for example, will be charged a 2 percent penalty fee. This will, hopefully, light a fire to get your clients to pay on time!
While you’re at it, make it a practice to check your clients’ business credit reports periodically. Late payments to other companies or more serious problems such as tax liens or collection accounts may be a sign you need to get paid upfront or find a different client.
Create a money map
Anyone can create goals or resolutions, but it’s important to leave yourself breadcrumbs to follow, said Pomerantz. She calls these breadcrumbs your money map.
“A perfect money map combines your KPIs (as identified by your values-centered business plan) with your financial statements to give you real-time reporting on your business. This allows you to track progress toward your goals,” Pomerantz said.
The key is to break your big, annual goals into smaller milestones:
“By focusing on short-term milestones, rather than more intimidating annual goals, you can easily focus, identify trouble spots and adapt your systems,” she said. “And by following along from milestone to milestone, you turn big goals into a clearly defined money map that leads you where you want to go.”
A good way to start is by breaking your annual revenue goal into a monthly budget and sales forecast. A more sophisticated money map would add metrics about profit margins, inventory turnover and cash flow.
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Be proactive about next year’s growth
If you want to grow your business next year, you need to look at several components of your business right now.
Walters advises taking stock of the following areas:
- New product/services offerings: Is it time to expand?
- Pricing: Should you raise your prices?
- Physical location: Do you need more space to grow?
- Target market: Are you successfully reaching your audience?
- Advertising options: Where else can you connect with your audience?
- Visibility in the community: How can you be more connected?
- Asking existing customers for referrals: Consider setting up a referral program
- Taking on partners or shareholders: Consider expanding your expertise and network
Because you likely spend more time busying yourself with the day-to-day minutiae of running your business, you may not regularly assess each of these areas of your company as they relate to your financials. Set aside a chunk of time to really review what you’ve accomplished and what you want to achieve in the coming year and beyond.
