As a small business owner, you probably find the end of the year a busy time. Before you know it, you find yourself into January trying to determine what the New Year will bring. One of the keys to being a successful business owner is taking a break from the day-to-day routine and spending some time doing valuable planning. This is sometimes referred to as working on your business, not just working in your business. To help you with this process, here are five things you should consider doing as a small business owner as you start the New Year.
- Prepare a budget of your income and expenses.
Unfortunately, very few small business owners take the time to prepare a budget. They either don’t have time or don’t find the value in it. The value in creating a budget is often just as much in the process itself as it is in the end product. As you review your prior year expenses, you may be surprised at what you spend in certain areas. If you don’t feel you’re being as efficient as you could be with your dollars, this is a great time to budget what you think you should be spending in certain areas. Then you need to review your budget versus actual income statement each month. There may be a good explanation for why you exceeded your budget in certain line items, but the key is to look at it on a regular basis and keep your budget in mind as you make buying decisions throughout the year.
- Prepare a capital expenditures budget.
Although this is similar to the item above, buying equipment really is a separate issue from your day-to-day operating expenses. Based on the current condition of your equipment, the expected growth in your sales and the potential efficiencies you can gain by investing in new equipment, spend some time thinking about what equipment you would like to buy and then create a timeline for doing so. You may not be able to afford to buy everything on your list at once, but prioritize your list and determine what you plan to buy throughout the upcoming year. If you follow your capital expenditures budget, it can help avoid impulse purchases or trying to buy a lot of equipment in December in an effort to reduce your tax liability.
- Evaluate your costs and make sure you’re charging enough for your products and/or services.
There are a couple issues here. The first one is to make sure you understand what it costs you to operate your business. If you’re a manufacturer, this would include your production costs. You need to know how much it costs to produce your product so you know how much to charge your customers. You also need to charge enough to cover your operating expenses and leave you with a desired amount of profit. Chances are if you haven’t increased your prices in a while, you’re making less money than you used to make. Most expenses increase each year with inflation alone so your prices need adjusted accordingly.
- Evaluate your balance sheet.
This can be a daunting task as your balance sheet includes your assets, liabilities and equity. Although a balance sheet doesn’t show your profit for the year, it’s a strong indicator as to the strength of your business. Does your balance sheet show the amount of equity you would like to see, or are you carrying more debt than you would like? How’s your liquidity? Accountants often calculate something they call the current ratio to evaluate the liquidity of a business. This compares your current assets (cash, accounts receivable, inventory) with your current liabilities, which consists accounts payable, accrued expenses and principal loan payments you will make in the next year. If your balance sheet is not where you prefer to see it, you need to consider what changes you need to make in order to get the desired results.
- Evaluate and build your management team.
Although this isn’t really a financial process, it has a direct impact on your financial performance. As talented as you may be, chances are there aren’t enough hours in the day to give everything in your business the proper attention. You need to have key employees in place with the proper skill set to keep your business running smoothly and efficiently. Hire people that complement you. You likely have strengths and weaknesses. Spend time where you are strong and don’t be afraid to hire someone that can handle the duties you are not good at. This may include getting help with operations, sales, product development, accounting, etc. Don’t be too proud to admit you need help. Investing in valuable employees can allow you to take your business to the next level.
The beginning of the year can be just as busy as the beginning of the year. If you need some help getting off on the right foot, contact Rea & Associates. Our team of Ohio financial and accounting professionals can help you figure out what you need to do to be best prepared for 2014.
Author: Mark Fearon, CPA (New Philadelphia office)