At the end of the financial year, it’s crucial to take stock of the past year’s performance and plan for the year ahead. This blog will help you review key aspects of your business and set the stage for a productive and profitable new financial year.
1. Review of the Past Financial Year
1. Financial Performance
- Revenue and Profit Analysis: Compare your revenue (how much you earn) and profits (How much the business keeps) against your goals and previous year’s figures. Identify trends and irregularities.
- Expense Review: Analyse your expenses to see where you can cut costs or reallocate funds more effectively.
- Cash Flow Management: Review your cash flow statements to understand your liquidity and plan for future cash needs.
2. Marketing Performance
- Campaign Effectiveness: Evaluate the success of your marketing campaigns. Which strategies yielded the best ROI?
- Customer Acquisition and Retention: Analyse customer acquisition costs and retention rates. Identify your most and least effective channels. Networking, Word of mouth, referrals, social media, events etc
- Content Performance: Review the performance of your content across various platforms. Which types of content resonated most with your audience?
3. Operational Efficiency
- System and Process Evaluation: Assess the effectiveness of your current systems and processes. Where can you streamline or automate?
- Team Performance: Review your team’s performance. Identify skill gaps and areas for improvement.
2. Planning for the Upcoming Financial Year
1. Setting Financial Goals
- Revenue Targets: Set realistic revenue targets based on past performance and market conditions.
- Budgeting: Create a detailed budget that aligns with your revenue targets and includes all projected expenses.
- Investment Planning: Plan for investments in marketing, technology, and personnel that will drive growth.
2. Marketing Strategy
- Strategic Objectives: Define your marketing goals for the year. These could include increasing brand awareness, improving customer engagement, or launching new products.
- Campaign Planning: Develop a detailed marketing calendar outlining key campaigns, content themes, and promotional activities.
- Channel Optimization: Decide which marketing channels to focus on based on past performance and new opportunities.
3. Operational Improvements
- Process Enhancements: Identify and implement process improvements to enhance efficiency and productivity.
- Skill Development: Plan for training and development to address skill gaps in your team.
- Technology Upgrades: Invest in new technologies that can streamline operations and improve customer experience.
3. Financial Fundamentals to Be Aware Of
1. Financial Statements
- Income Statement: Understand your revenues, expenses, and profits.
- Balance Sheet: Know your assets, liabilities, and equity.
- Cash Flow Statement: Track your cash inflows and outflows tomanage liquidity.
2. Tax Planning
- Tax Obligations: Be aware of your tax obligations and deadlines.
- Plan for tax payments to avoid penalties.
- Deductions and Credits: Identify all available deductions and credits to minimise your tax liability.
3. Financial Ratios
- Profitability Ratios: Assess your business’s profitability (e.g., gross margin, net profit margin).
- Liquidity Ratios: Evaluate your ability to meet short-term obligations (e.g., current ratio, quick ratio).
- Efficiency Ratios: Measure how effectively you utilize assets (e.g., inventory turnover, receivables turnover).
4. Profit First Method
The “Profit First” system, developed by Mike Michalowicz, is a cash management strategy that helps businesses prioritise profit. The idea is to manage cash flow by dividing income into specific categories or “buckets” based on percentages.
Traditional: Sales−Expenses=Profit
Profit First: Sales−Profit=Expenses
This ensures that profit is prioritised and set aside first, forcing the business to operate within the remaining budget.
Steps to Implement Profit First
1. Set Up Separate Bank Accounts
- Income Account: All revenue is deposited into this account.
- Profit Account: A portion of income is transferred here to ensure profit is reserved.
- Owner’s Compensation Account: A portion is allocated for the owner’s salary.
- Tax Account: Funds are set aside for taxes to avoid last- minute scrambling.
- Operating Expenses Account: The remaining funds are used for daily business expenses.
2. Determine Your Percentages The percentages are typically allocated based on your business’s size and needs. A common starting point for small businesses might look like this:
- Profit: 5%
- Owner’s Compensation: 50%
- Tax: 15%
- Operating Expenses: 30%
3. Allocate Funds Regularly
- On a regular schedule (e.g., bi-weekly or monthly), transfer the designated percentages from the Income Account to the respective accounts.
4. Adjust Percentages Over Time
- As your business grows and becomes more profitable, gradually adjust the percentages to increase profit and owner’s compensation while managing expenses effectively.
Example Allocation
If your business earns $10,000 in revenue for a given period, using the example percentages:
- Profit Account: $500 (5%)
- Owner’s Compensation Account: $5,000 (50%)
- Tax Account: $1,500 (15%)
- Operating Expenses Account: $3,000 (30%)
Benefits of Profit First
- Ensures Profitability: By prioritising profit, businesses can avoid the common pitfall of having little to no profit left after covering expenses.
- Disciplined Spending: Forces the business to operate within its means, promoting lean and efficient operations.
- Financial Clarity: Provides a clear and simple framework for managing cash flow, reducing financial stress.
End-of-year financial planning is essential for setting your business up for success. By thoroughly reviewing the past year and strategically planning
for the next, you can ensure that your business remains productive, profitable, and aligned with your purpose. Implementing the Profit First method can further solidify your financial stability and growth.
If you are stuck and overwhelmed navigating your business growth, and are ready to have someone support you and hold you accountable, Book a call with Chantal
