Look forward to 2024 by reviewing 2023 and planning for the future
It’s the holiday season! This means family, friends, presents, and time off; however, business owners and managers have other considerations. They need to make sure everything is completed for the year that’s about to end while also getting prepared for the new year. Here are 4 things that business managers and owners should focus on in the last weeks of the year.
Review This Year's Goals and Achievements
Spend some time reviewing the goals you had for the previous year, reflecting on your company’s performance, and comparing your budget to the actual numbers. What goals did you achieve and where did you fall short? How did you perform better and where could you have done better? Where did you slide away from your budget and where could your spending have been better allocated? What limitations are there keeping you from having more impact? Are there ways to be creative about these limitations and turn them into advantages?
It is important to remember when comparing goals and budgets to the actual performance to not get discouraged about things not going according to plan. Many variables can’t be controlled which will disrupt even the best made plans; however, the process of planning is intended to help managers think through these variables and figure out ways to respond to various situations. If the year brought about unexpected challenges, you now know something else to consider in the coming year.
Review the Financials and Determine Profitability
Tax time is coming sooner than you think, so having an idea of how the business did financially is of tremendous importance. To get an accurate read on this requires diligence in keeping tracking of revenue and spending. This is easier if all spending is done through business bank accounts and cards, but can quickly become complicated if you’re reimbursing employee expenses or using personal credit cards. Something else that can complicate things greatly are using online payment tools like Paypal or Venmo if funds stay in the application rather than being moved directly to bank accounts.
If the company didn’t do well financially, this is where it becomes more important to look at expenses and see where it may make sense to trim for the coming year. Evaluating any regular or automatic expenses is a perfect place to start. Memberships intended for business development not getting the desired results could be allowed to expire. Software subscriptions should be reviewed to see if you’re paying for more features than you need or even using them at all. Another tip for software is to find out if you’re paying for subscriptions to software that duplicates features.
Labor is almost always a substantial expense and wanting to make cuts is a typical response, but it’s important to first look at labor to see how well it’s being used and how much revenue is being generated. Sometimes people are being paid too much, but one of the biggest mistakes a company can make is cutting employees without understanding how the organization will function if those skills or knowledge are no longer available - this is often seen when companies cut back on employees in sales or tech support.
If financial performance was better than expected, it may make sense to do some end of year spending. This could mean upgrading your computers or buying other items to increase productivity or capabilities, but it could also mean giving your employees a holiday bonus to reward them for helping the company get to where it is.
Determine and Document Company Goals
Running a company without goals is like going on a vacation without choosing a destination. Setting even basic goals provides direction while also helping determine the speed and effort needed to achieve the goals. If you’re unable to achieve the goals you set, you can look at how you fell short in the past to get insights on how you need to adapt. Are different skills needed? Do you have the right people in the right positions? Do you need new or different people? Are you targeting the right customers or clients? Do you need to find new ways to reach those people?
While there are many ways to set goals, it is usually good to start with your ultimate goal and work backwards with step goals. Many companies choose to do this with 5, 3, and 1 year goals. Sometimes it makes more sense to start with 1 year, 6 months, and 3 months if your company is new or you’re pivoting.
Another helpful way to set goals is making sure they adhere to the SMART system created by George Doran, Arthur Miller and James Cunningham. This acronym stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. If you’ve never used it before, it’s worth reading about more to use it more effectively.
If your company appears to have hit a ceiling and can’t seem to meet or exceed certain goals, it’s sometimes helpful to work with a consultant. They can help you find out if the goals being set are the right ones and see if what you’re looking at is a problem or just a symptom of something else that’s preventing progress.
Create your Company Budget
While setting goals, it will be natural to think about how to afford the steps needed to make them happen. Even so, it helps think about your goals before figuring out how to afford all of the steps to make those things happen. It’s important to remain optimistic as well as ambitious when thinking about the future. Focusing on limitations can limit both optimism and ambition, so challenge yourself to look past the money a bit at that stage.
Ultimately, how to pay for the steps to achieve your company’s goals will have to be addressed. Many larger organizations often use past budgets with marginal increases to set the subsequent budgets. Smaller organizations are far less likely to do this, especially if they have goals to grow, but also because they have less of a budget and need to be more careful in how they use their available funds. Using the goals should help greatly in how to prioritize funds to achieve the desired outcomes.
If you have a previous budget, you’ll generally know what categories exist already. If you’re working on your first budget, some things you’ll want to address are:
Payroll and Contractors
Marketing and Advertising
Depletion and/or Unpaid Invoices
Insurance
Interest
Professional Services (e.g., legal, accounting)
Office Supplies and Expenses
Rent or Lease
Repairs and Maintenance
Taxes and/or Licenses
Travel
Meals and Entertainment
Utilities
Managers are often surprised where money actually goes during a company’s first year of operations. While some spending is unavoidable, using a budget and checking against it periodically can be an eye opening experience. It can also be an invaluable exercise if only to prepare you for the second year’s budget.
Working on these 4 things near the end of the year can help build some structure around reviewing the past and planning for the future. If you find it overwhelming, you’re not alone. This is especially true in times of stress. This is why it’s a good idea to work with a third party that can help you look at things from a different perspective and help you make decisions with less emotion attached to them. If you find yourself in this situation, Brightleaf Consulting Group is happy to help with finding solutions to your challenges and to help get your company back on track or to shift it onto a new one.