The time between Thanksgiving and Christmas is the most important time for your business. Why? Because it is when you conduct your annual business review. In order to successfully plan for next year, you must first analyze what happened last year. It is the only way to improve, whether in business or in life.
Why Your Annual Business Review is Crucial to Your Annual Business Plan
Imagine you’re a basketball player. You’re in the gym working on your shot, but you’re shooting from behind a curtain. You can’t see whether or not each shot goes in, so you have no way to know if you are improving. This is what it’s like going into a new year without first conducting an annual business review.
Whether your company has 100 employees or one employee, the year-end review is equally as important. The two most important areas to review are your financials and your human resources. I dedicate a full two articles to your year-end financial analysis here and here.
For human resources, you want to look at the performance of each department. You also want to analyze the individual performance of each employee within those departments.
Are you a one-person business? You still need to do this employee review. Imagine each duty you perform is done by a separate version of yourself. Conduct individual reviews for your accounting, sales, marketing, and all of the other “hats” you wear for your business.
This review will show you your strong areas, as well as areas you should consider outsourcing. I outsourced all of my Accounting five years ago and it was the best possible move I could have made for my business.
Once you’re done with your review, you’re ready to start mapping out your annual business plan.
Creating Your Annual Financial Plan
Imagine you’re an architect. Instead of designing a building blueprint, you’re designing a blueprint for your business next year. So how do you create this blueprint for success?
The first step is creating your annual financial plan. You want to make an expense budget for next year based on last year’s financial results. All of the subsequent areas of the annual business plan are relative to your expense budget. When crafting your expense budget, be crystal clear on where you will spend money, and the reason for spending said money.
Look at last year’s profit and loss statement to check your total revenue and total expenses. Your expense budget is the total expenses for overhead plus the direct costs of meeting your total revenue goals for this year.
Setting a realistic budget requires you to get specific regarding your financial goals. Say you want to double your revenue next year. Here are some questions you should ask to get more specific:
- What are you going to sell more of?
- What new products or services can you start selling?
- How can you cut overhead costs?
- How can you reduce direct costs?
Answering these questions takes your financial goals out of fantasy land and makes them tangible. Now let’s talk about putting this financial plan into action.
Putting Your Financial Plan into Action
How many times have you said “next year I’ll be a millionaire”? If you still aren’t a millionaire, why do you think that is? The answer is in your approach. Goals are great, but they are useless without a clear plan of action.
Creating a plan for your financial goals shows you whether or not your financial goals are reachable. Most people overestimate what they can accomplish in 90 days or a year, but they underestimate what they can accomplish in 5 or 10 years.
The first question you need to answer is: “ How much do I have to increase sales to reach my revenue goals?”
The answer to that question comes from last year’s profit and loss statement. The three key numbers to analyze are:
- Total Revenue
- Total Expenses
- Net Profit
Once you know how much you have to increase sales, reverse-engineer this number into quarterly, monthly, weekly, and daily sales goals. This shows you the plan of action you need to follow in order to hit your annual sales goals.
In part two we will cover the marketing, human resource, and projects sections of your annual business plan.