Here are some thoughts on financial reporting to consider as you plan your business for the coming year.
Perform a Financial Review First, take a look at your current financials to make sure they are in order. If there are historical errors, fix them. Make sure the Balance Sheet is correct (you'd be surprised how many businesses do not have proper Balance Sheet accounting).
Make sure your chart of accounts makes sense and helps you manage your business. Do you have expense items in your Costs of Goods Sold, or vice versa? Are the categories well-defined and consistently used? If not, make changes for the new year.
You need a good clean starting point to move forward.
Construct a Budget
Now is also a good time to update your budget. And, if you don't have a budget, it is time to get started!
How did your business perform last year and how do you envision it performing in the coming year? Project revenues and expenses, including any known changes - revenue gains from new products or services, changes to marketing costs, rent or salary increases, etc.
If your projections won't get you to where you want to be at the end of the year, then what changes can you realistically make? And, what time and money will be needed to implement these changes?
Your budget is a necessary and useful tool; it provides a great opportunity to reassess your operations and develop a realistic roadmap for the coming year.
Create a DashboardAs in many things in life - where we place our attention is what will change. But, if you try to focus on too many things at once, nothing receives adequate consideration.
A customized monthly dashboard focuses on the key drivers of your business and helps you quickly and regularly assess the health and trajectory of your business. A good dashboard fits on one page and has these key components:
Trend Analysis: A chart of monthly or cumulative revenue and expenses provides visibility into progress on achieving revenue and income goals.
Budget-to-Actual: Reviewing expense variances on a monthly basis allows you to course correct mid-year.
Key Performance Indicators: Every business has key metrics that underlie performance. Depending upon your business, it can be anything from billable hours, expense ratios, event (or product) profitability to asset turnover, to name a few. Decide which is most important for your business, and track it.
The budgeting process is very useful, both in understanding the financial underpinnings of your business as well as planning and forecasting. However, it is a one-time event.
A monthly dashboard helps you track performance throughout the year. A good dashboard is a powerful visual that tells you if you need to course-correct mid-year. It can also be an early indicator of trends which may later develop into issues.
If you would like assistance reviewing your financials, developing a budget or creating a customized dashboard, please give me a call. I would be happy to help.
Until next month,
Point Your Business Where it Needs to Go!