Two years ago, I wrote a piece about things that ought to be done to close out the current year cleanly, and get a strong start in the new year. Since this is the time of year to do those sorts of things, I thought it would be appropriate to post a similar piece. So I went back and reviewed what I had written two years ago, and decided the material is still relevant and that I really couldn’t say it much better now than I did back then. While I did make a few small additions and changes, it is fundamentally a repost from two years ago.
January is a time of renewal. It marks a new beginning, a fresh start. But there are things you should be doing now, before December 31, to get you out of the blocks fast when the year turns over. If you’re on a roll, you need to think about how to keep that roll going. If the year now ending is one you’d like to forget, then you need to think about how to make the new year better. Either way, there are five things you should do before we say goodbye to the old year and ring in the new. Actually, there are probably more than five things on your to-do list before the end of the year, so I hope the five I have in mind will be included. For more on this, please read below.
Five Things To Do Before December 31
First, you need a written Annual Plan that outlines the three to five strategic initiatives you intend to implement next year to move your company forward. Hopefully, this is already done, but if it isn’t, there’s still time. This needs to be done thoughtfully, but it doesn’t have to be a complicated or time-consuming task. A single page per strategy should do the trick. Just start with a paragraph that describes the strategy, explains why you’re implementing it, and lays out the benefit(s) you expect to come from it. Then break the strategy down into individual tasks, assigning responsibilities and deadlines for each, and TA DA! . . . you’re good to go. I assume you would be making this Plan with the help of key managers, but if you’re very small and doing this solo, then run the Plan by your attorney, banker, accountant, or other trusted advisor for their input.
(*) Second, you need a Profit Plan . . . sometimes called a budget. I prefer Profit Plan because “budget” has a negative connotation. It sounds restrictive, confining. Profit Plan, on the other hand, is more positive. It says, “Here’s the profit we intend to make next year, and here’s how we intend to do it.” Start with a month-by-month sales forecast which is always the dicey part because sales forecasting isn’t an exact science. Be guided by your sales history, adjusting as necessary for current conditions. The trick here is to come up with a forecast that’s realistic, neither unduly pessimistic nor overly optimistic. Once you know what you expect to sell, determining your costs to complete your Profit Plan is relatively easy. If necessary, get help from your accountant. The strategic initiatives in your annual plan will almost certainly have cost and revenue implications, so be sure your Profit Plan takes those into consideration.
(*) I imagine some of you are saying, “No duh Sherlock! Of course we’re preparing a 2016 Profit Plan! Who isn’t?” Unfortunately, more business owners than you would guess operate without the benefit of a Profit Plan. If you’re such a CEO who doesn’t use a Profit Plan (and you know who you are!), make 2016 the year you start using this fundamental business tool.
Third, do a customer review with the objective of ferreting out unprofitable customers. You know who they are. They’re the ones who demand $100 worth of service for their $10 order. Wouldn’t it be nice to start the new year by making those problem customers available to your competitors?
Fourth, do an audit of your products or services. Sometimes subtle changes in the market, in your customer mix, or in your labor and material costs can chip away at gross profit margins. Take a look. Are all your products or services producing their fair share of the company’s gross profit. Is it possible one or two have lost some of their luster? If so, your Annual Plan should include a strategy to return the underperforming products or services to their proper level of profitability, or if that’s not possible, you may want to consider a strategy for phasing them out.
And finally, do an audit of your general ledger. In part, you’ll be doing this anyway to prepare your Profit Plan. But this additional scrutiny will tell you if any waste has slipped into the system that needs to be curtailed, or if costs are creeping up and need to be more carefully managed. You can almost always find something here to add to your bottom line.
So those are the five to-do’s I recommend before December 31.
- Write an annual plan covering three to five strategic initiatives.
- Create a Profit Plan to act as your road map to the profitability you expect.
- Do a customer review and get rid of those who are not a good fit for you.
- Audit your products or services looking for any that are underperforming.
- Audit your general ledger looking for waste and/or costs that are creeping higher.
As I’ve said, this is not intended to be a definitive list of all the things you need to do before the year is out, but if you do these five, I guarantee you’ll have a better year next year than you will if you don’t do them.
For some small business owners, all this planning and financial stuff can be a bit intimidating. If that’s you, call me. We should talk.
Rock Solid Business Development
Phone: (847) 665-9134
andy@rocksolidbizdevelopment.com
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