Whether your business has had a great year, just an okay year, or a year that could have gone better, knowing how you are going to run your business for next year can give you a leg up on achieving outstanding results in 2023.
- Less anxiety: When a business owner has a plan, there is less anxiety as the year progresses. Knowing that your business has seasonality when some months yield greater revenue than others, knowing that an investment in Q1 will yield strong sales in Q3, etc.
- More efficient management of time and resources: knowing you need to hire or build inventory earlier, enables you to spend time wisely before it becomes urgent
- Better strategic decision making: is this the year to build more scale, to innovate, or to pull back and reimagine the business? Planning gives you, the business owner, control over your business strategy. What is the priority for the year and where will you be investing or pulling back?
What is a Plan?
A business plan is a document that lays out your goals for the next year and potentially for the next three to five years. These goals include your financial projections, your assumptions about the trajectory of your business, and what you will need in order to reach your goals. Goals can include things like:
- Grow revenue by 10% over last year
- Introduce a new product or service which will contribute $X in the last 6 months of this coming year
- Increase sales in a particular area by 20% over last year
- Improve marketing efficiency by 15% (lower cost of acquisition per new customer)
- Retain 5% more customers this year that we retained last year
Your business plan serves as a roadmap for the year and years to come because thinking about what you want to achieve and how you want to achieve it enables you to make decisions and tradeoffs consistent with your intention. It can prevent you from making a wrong turn when it’s time to invest or pull back.
Revenue: Knowing where your incoming money is going to come from, how much you anticipate selling, how big or small you are going to be, and how your incoming dollars are going to change month-to-month can help you anticipate how your year will evolve.
Expenses: what amount of money do you need to spend and have on hand in order to run your business and achieve the revenue you would like to achieve?
How to Plan
If you’re an established business, at the heart of every method, you will want to have an understanding of how the results of the prior year – revenue, expenses, profit. If you are a new business, the plan will entail more educated guesses based on the type of business, the market in which you sit, and your level of investment.
There are many ways to go about building a plan. Here’s one for you to consider:
Here’s one way to consider:
- Establish your goals. What goals do you have for the upcoming year? Is your business going to grow this year or is this to spend more time and resources investing in your business? What do you want to achieve?
- Develop the revenue part of your financial projections: Consider how revenue is generated for your business, the seasonality impacts, how much growth you want to have. Where will your revenue come from? Will you have opportunities this year that you didn’t have last year to find new customers or increase the revenue from existing ones? Did the market change for your business in some way that will impact how much money you can bring? What might factors might increase your revenue and what might hold you back?
- Build out the expenses part of your financial projections. What do you expect your expenses will be for the year in order to achieve the revenue that you forecasted for next year? Look at last year’s expenses and the revenue you hope to achieve and see what needs to increase or what could be decreased. There might be opportunities for cost savings or a loan opportunity that may impact your need for cash. Where might you have you some improvements in your efficiency? Do you need to hire some additional employees to meet your revenue goals? At what point in the year should you consider starting to look?
- Iterate. Look at the projections you have and make adjustments. Ask yourself if you can reach your goals with the plan you have. Challenge your numbers and see if you can find efficiencies in spend or maximize investments in things like marketing or sales.
- Socialize your plan with trusted advisors and peers to get ideas and input to make your plan more solid.
What Do You Do With Your Plan?
Your plan is your roadmap for next year. Use it to gauge your progress on the path to achieving your goals. Keep it close and reference it often.
If you are meeting or exceeding your goals, you may want to make some adjustments to reflect your success and adjust your goals to be more aggressive. You may discover that your marketing or sales is more effective and may want to invest more there; you may discover that the market is more responsive than you expected to a particular product or service and consider your options.
If you are falling short on your goals, you may utilize your plan to understand where you are not getting the return on the investment you are making and adjust your expenses, by pulling back, reallocating, or investing differently.
Revisit your plan every month or two to compare how your business is performing relative to the expectations laid out in your plan. Are you exceeding revenue targets? How does that increase in revenue impact your expenses? Are you falling short of your revenue expectations? What actions might you take to accelerate sales?
If you want another set of eyes on your plan, to help you get started or to make it even better, Arena can help. Our team of financial experts can bring their experience directly to your specific business to ensure your financials are in tip top shape.
Investing in your planning is investing in your future. Cheers to a successful 2023!