The financial health of your business starts with a plan designed to guide you down the path to success. And that plan needs to be revisited each and every year to keep your finances on track. Otherwise, you could be leaving money on the table and keeping your business from achieving its true potential.
So, to start 2020 off right, you will need to take an honest assessment of your business finances. Then, you can use the following steps to create a plan that will lead you into the new year with confidence.
Explore the Prior Year’s Finances
In order to see just where your finances are at, you have to take a look at 2019, mapping your progress to this point. To do so, gather up all your financial documents from the past year and lay it all out before you.
Then, as you review, take notes on:
If you carry business debt, you will need to go one step further in the review process to ensure all is well on that front. Every year, you should check your accounts to verify that your interest rates, fees, and other borrowing terms have not changed significantly — and that they are the best terms available to you.
With an honest inventory of all these areas, you can start to see where you can improve in the coming year and beyond. Then, you can make changes and set goals that will benefit your business finances well into the future.
Define SMART Goals
When it comes to improving the financial health of your small business, SMART goals are key. These goals are specific, measurable, attainable, relevant, and time-based, paving the way to success for your startup. In making sure all your goals hit on these key areas, you will have clear targets to move toward in running your business.
If you are looking to bring in more leads and increase your revenues, for example, your goal should spell out:
Repeat this process for every goal you have as an entrepreneur and the pathway to success will become quite clear.
Build an Emergency Fund
Since there is no telling what the future may hold, you need to have a solid emergency fund to protect your business. An emergency fund allows you to handle unexpected costs and stay afloat when things are just not going your way. That way, your business income can fluctuate without disrupting your operations or causing a panic.
But figuring out just how much of an emergency fund you need can be tricky, as every business is different. To sort this out, think about:
Depending on your answers to these questions, aim to put away between three to six months of expenses to start. Continue adding to the fund as much as possible until you have enough to cover 12 months of expenses.
Take a Look at Pricing
As an entrepreneur, looking at your product and service pricing on a yearly basis can really pay off. You need to regularly adjust pricing to account for changes in the market to keep your profit margins healthy and continue growing your small business.
To determine if you need to raise your prices, you can review your expenses, perform a competitor analysis, and calculate your profit margin figures. Ideal profit margins greatly vary across all industries, with many coming in at 10 to 20 percent.
If you are making a decent profit on your products and services, but not yet generating your expected revenues, you can focus on increasing sales instead. For example, you might adjust your marketing approach or provide additional value to your customers, positioning yourself ahead of the competition.
Bring in the Professionals
When it comes to making sure your business finances are in check, there is really no room for error. For that reason, it is always a good idea to bring in an accountant and other financial experts to take a look as well.
As your accounting professional shares their insights, you can see just where you can improve your approach, positioning you to better achieve all your SMART goals. They can assist you in streamlining your payroll processes, creating a beneficial budget, and improving your bookkeeping practices – all helping you to stay ahead of problems in the new year and beyond. Their assistance will provide you with actionable steps to take in improving the financial health of your company along with complete peace of mind that you are on the right track.
When you follow these steps, you can fine-tune your business finances and start 2020 off right. You will be better able to achieve all your goals and continue growing your business well into the future.
Sonu Shukla, CPA writes for CountingWorks, an accounting news and advice website. Reach his office at [email protected].
About Sonu Shukla, CPA, CFP
Sonu Shukla is a Certified Public Accountant as well as Certified Financial Planner. He believes in proactive tax planning and has the skills, education and experience to demonstrate passionately planned financial strategies. His firm tailors highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out. Located in Orlando, FL, he services all of Florida.
