Here are our top 8 Tips to Profit Planning for your Business. We have gathered these ideas from our clients while working with them to prepare their financial plans.
As we near the end of the year it is time to start reviewing your previous year and planning for the next. Developing your financial plan is an important aspect of your business so you always know where you are financially. If you don't keep track of how much money you're making, you have no idea whether your business can be successful or not. You can't tell how well your marketing or other business-building activities are working. You need to know what your net profit is. If you don't, there's no way you can know how to increase it. To be successful in business, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems.
Let's get into the tips:
- Create a Financial Plan & Business Plan:
- Estimate how much revenue you expect to bring in each month, and project what your expenses will be. If you need it, get help from business planning books, software, or an accountant. This will help you to plan your business steps moving forward.
- Review the Plan Monthly:
- Even if time is taken to prepare a financial plan with profit and loss projections, it often sits in a desk drawer. It's not enough to have a plan -- you have to review it regularly. This is why we use forecasting and enter budgets in your Accounting system on a continual basis.
- Lost Profits Can't be Recovered:
- When comparing your projections to reality and finding earnings too low or expenses too high, the conclusion often is, "I'll make it up later." The problem is that you really can't make it up later; every month profits are too low is a month that is gone forever.
- Make Adjustments Right Away:
- If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably? Here at Analysis360 we also provide a business review that includes benchmarking to other businesses similar to yours.
- Think Before you Spend:
- When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase. You can often increase your profitability simply by delaying expenses to a later month, quarter, or year.
- Don't Be Afraid to Hire:
- Retailers and restaurateurs wouldn't consider operating without employees, but many service businesses limit themselves by being understaffed. Almost any business can benefit from hired or contracted help. You can better use your talents for generating revenue than for running errands and filing. How can Analysis360 help you- We provide ANALYSIS of Pro-Con cost reviews Staff vs Contractor including supplying you related employment contracts or sub-contractors contracts.
- Pay Yourself a Salary:
- If you are incorporated, you may already be doing this. If not, allocate an amount to the owner's compensation on a monthly basis. Each month that your business meets its profitability goal, pay yourself the full amount. When you miss your target, dock your "pay" and when you exceed it, pay yourself a "bonus." Writing yourself a monthly paycheck will give you a strong incentive to keep your business profitable. Work with your Accountant to determine the best compensation level, and how much dividend should be taken. Dividends on the common stock of a corporation are taxed at one of the lowest tax rates in the Canadian Income Tax System.
- It's About Profit, Not Revenue:
- It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them. For many clients, we teach and coach our Profit First Program. Which can increase the net value of your business to enhance a future sale.
If you are looking for help in creating your Financial Plan, book your Free Consultation with us today!