It’s that time of year again! 2017 is right around the corner, and for many business owners that means doing a financial review of the progress they made in the past twelve months.
The year-end review is important for a number of reasons. It allows you to measure your business’s growth and progress so far, it gives you a benchmark for the following year’s goals, it identifies possible financial issues that exist or could potentially arise, and it helps you plan for the following year by identifying strong periods and slow ones. Here are the 4 questions that should be asked:
1. How much money did you make?
A strong sign of a healthy growing business is if your annual net profits exceed that of the previous year. You will also want to review performance on a quarterly or monthly level as well in order to determine which periods were the most profitable for your business.
2. Did sales perform better or worse than expected?
Unlike gross profit, revenue is simply the amount of money the company gained from sales activities. You should compare each period’s total sales revenue to both external and internal factors. This will allow you to determine whether or not sales varied because of factors such as new competitors entering the market or if a marketing campaign was ineffective.
3. Were your expenses on budget?
It’s important to pay close attention to your expenses because even small changes can make a significant impact to your bottom line. With this in mind you want to find out where expenses deviated from your annual budget and why. This information can then be used to reduce costs the following year or adjust your budget accordingly so that you can create more accurate goals for sales and gross profit.
4. When was cash flow the tightest?
Most businesses experience periods in the year when cash is low. You will want to know when this happened and why. Knowing when these periods occur, will allow you to create a more successful financial strategy. In any business that sells on account, cash flow lags sales by the average receivables aging. If your sales are low in the summer and increase in the fall, your cash flow will be lower as you move into your busier season and you will not have the cash available to support your growth. Here, if you want to consider adding financing options to reinvigorate cash flow, your plan should include invoice factoring financing, small business loans, and / or a combination of programs for maximum effectiveness.
These four questions will provide you with some very valuable information that will play a vital role in your plans for the upcoming year, especially if you plan to grow or expand your business. You can use these insights to determine which times of year would be the most profitable, which strategies are the most effective, and which financing solutions would be the best choice to fund new projects. PMF Bancorp’s hands on assistance and experience allows are clients to arrive more easily and solve their financial needs through are many flexible working capital programs.