As the end of 2017 rapidly approaches, now is a great time to work on your strategic plan for 2018 and take advantage of some financial tips and tricks that are best leveraged at the end of the year.
Whether you make budget planning a necessary part of every year, or you’ve never quite gotten around to it, these best practices will help you create a plan that is both aspirational and realistic.
1. Implement zero based budgeting
Since cash is the life blood of any business, one of the best things you can do to at this time of year is project your budget for the next fiscal year based on your business goals for 2018. My favorite method of doing this is using zero based budgeting.
Zero based budgeting is a method of budgeting in which all expenses must be justified. In other words, you don’t budget for something next year because you budgeted or spent that money this year. It starts from a “zero base” and every function within an organization is analyzed for its needs and costs.
Before your start your budget, think about your goals for the next fiscal year. Do you want to modernize your business by giving it an online presence (if it doesn’t have one)? Do you want to increase sales and your customer base? Do you want to improve cash flow? All of these are valid goals, but they have specific costs and benefits associated with them that you should budget for.
2. Budget for growth
If you’re like most business owners, growth is always top of mind. Growth should always be accounted for in your budget.
For example, to modernize your business with a new or updated website you will have to invest money in web development.
While you’re making the move to go online, you should think about the strategic purpose of your website. Do you want to improve your online presence to generate more leads? Do you want to add the functionality to your website to accept credit cards so that your customers can pay online and make recurring payments, thus improving your bottom line? The reason for updating your website and the functionalities you add will have varying costs which should be researched and included in your budget.
In addition to the costs, your projected budget should also conservatively anticipate the added benefits and revenue growth associated with generating more leads and/or allowing people to pay online for example.
3. Improve customer experience to boost sales
Around this time of year, most business owners are brainstorming ways to find more customers and boost sales. While it’s easy to add additional revenue to your projected budget, it’s important to think about the associated costs of bringing in new business.
For example, to get new business, are you going to increase your promotions and marketing budget? Another option is to increase sales by having your current customers come back more often or “upselling” them additional services.
For example, ask yourself if you are making it easy for your customers to make appointments, contact your business, and ultimately pay you, or are there steps that are overly complicated? Don’t be afraid to talk to some of your customers to get their honest feedback for areas of improvement.
4. Crunch the numbers
Once you’ve decided on your goals, it’s time to work on your budget.
If you’re building a budget for the first time, there are plenty of free budget templates online like this one.
Start by conservatively estimating your sales and revenues based on last year (if you don’t have that information, look at the past few months and make an educated guess).
Make sure you look at all costs and revenues carefully. Is there revenue that has small margins and should be eliminated? Are there costs that have a small or negative return on investment?
With zero based budgeting, it’s important to look at all parts of your budget and carefully analyze if you want to continue with them next year. Don’t keep doing something just because you’ve “always done it that way.”
Once you’ve carefully analyzed past expenses and revenues and decided if you want to plan for them in 2018, think about your goals for 2018 and add the costs and revenue growth associated with your goals to your budget. Subsequently, you should have some key people review your businesses’ budget for edits, additions, and/or errors. The end goal should be seeing your projected budget in black. If you aren’t able to create a balanced budget, you should go back and edit your budget to make sure that your plans and goals are financially feasible.
5. Decrease your tax liability…go shopping!
In addition to strategic planning and doing financial projections at the end of the year, this is also a good time to leverage some of my favorite financial tips and tricks. Start by working with your accountant to determine your tax liability for this fiscal year. There is still time in the fiscal year to reduce profits and lessen your tax liability if you need to do so.
For example, if you are on a cash basis you can pre-purchase supplies and/or inventory (that won’t go bad) before the end of the year. The great news is that the end of the year is an excellent time to pre-purchase items because many things are on sale due to the holidays.
According to Consumer Reports, November is the best time to purchase appliances, laptops, tablets, electronics, and furniture. December, on the other hand, is the best time to purchase gift cards, small appliances, and kitchen items. If the items that are on sale aren’t helpful for your business you can still pre-purchase the supplies you would normally use to reduce your tax liability. As always, make sure you save your receipts and be sure to have your items purchased by the end of your fiscal year.November is the best time to purchase appliances, laptops, tablets, electronics, and furniture Click To Tweet
On the other hand, if you are on an accrual basis you can still leverage the holiday sales to stock up on supplies, but it won’t help you with your tax liability. Instead, to reduce your tax liability if you are on an accrual basis you can push off sales until next fiscal year. As always, before you do any of these things I would highly recommend that you consult with your accountant.
Although the end of the year can be a busy time, it’s important to leverage this time to take advantage of some important financial opportunities. Making time now to work on your business instead of in your business can set you up for success in the year to come.
Start a free 14 day trial and learn how PaySimple can help run a more efficient business: