A common question business owners may ask an accountant is “how do I know whether my business is improving or going backwards?” You might have purchased a new asset, or put on an additional employee, and want to see tangible value and growth from your investment. The most reliable way to increase growth in your business is to plan for it – by investing time to plan and structure business operations, you will be able to predict (as much as is possible in business!) your business growth each year.
- Plan to ‘plan’:
It is important that you take time at the start of each new financial year, to create a forecast for your business for the upcoming year. This involves reviewing your Profit & Loss statement for the prior FY, and forecasting your P&L targets moving forward. Not many business owners actually prepare a 12 month budget for their business, but it is one of the more important things you can do to drive your business forward.
- Plan for increasing Revenue:
While this sounds simplistic, the easiest thing you can do to ensure your business is tracking forward is to aim to increase revenue each year. Aim for a nominal amount, say 5%, and while no one can predict the future; the point is to create a revenue target you can aim for that is higher than last year…wherever you land (as long as it is not in the red) will be growth.
- Plan for Expenses:
Purchases and wages are typically the largest expenses in most businesses. If you can forecast what these might be for the forthcoming year; you might know that you will to purchase new equipment, or put on additional staff for the busy season; then you can set your gross profit margin as a percentage of your projected income.
- Plan for Profits:
Ask yourself: are your projected profits higher than last years’ profits? If not, why not? It is vital to implement a plan to increase your revenue forecasts and/or reduce your expenses so that your projected profits can be higher. Once you have projected this for the year, break it down into months and incorporate this into your month- to- month business workflow systems.
- Plan to Track your progress:
Now that you have something to aim for each month, you have to monitor your progress to compare your forecasts with your actual results. There are several ways you can do this, but the easiest way is to utilise online accounting software – once you enter the data, intuitive and easy to use reports can be generated that will highlight any gaps or areas for improvement; or to simply celebrate having a great month! You will be surprised; aiming higher and regularly reviewing your results will lead to better business decisions, as well as increased profit and growth each year!
Talk to the team at MSI Taylor; we can help you get your business on the fast track to growth!