Year-end planning is both an exciting and stressful time for business owners.
There are a lot of things to think about including including business planning, budgeting, and tax planning.
The first thing you should do is to think about “you.” And, more specifically, how this is a time to take a moment for yourself during these last few months of the year.
The most important thing to ask yourself is what is your vision for the business? Once you have established a vision, you can turn that into a strategic direction for the business which turns into your mission and goals. Now you have a business plan.
Remember to breathe, think, and figure out where you want to go. Because where you want to go is the most important thing for your business.
Steps to Annual Business Planning
When should you do year end planning? How and when do you organize everything?
September – early October: You should be thinking about what you want to accomplish in your business.
Start drafting out broad plans, the vision for the future, and make sure it’s consistent with last year and the year before. If you’re going to take your business in a different direction, make sure you’ve outlined it very clearly.
October: Start putting together your organizational chart. Figure out who reports to who. Make sure you refresh all those job descriptions and accomplishments. Things that are going to happen at each job description that are going to lead into your vision for the business.
Depending on the size of your business, consider setting up departments where each one is responsible for their own budget and their own forecast for the next year.
Think about the things you’re going to measure every single month. For example, the sales department may measure activity, proposals and bookings every month.
The marketing department may measure leads, brand impressions and/or ROI. You can have milestones like revamping the website by February 15th or hiring a new sales person for a specific territory by June 30th of next year. These are examples of milestones vs. things that are recurring which should be set up in October.
November: Plug your numbers into forecasts and budgets. As a reminder, a budget is something you set up at the beginning of the year that lasts the entire year and does not change.
A forecast is updated more often; typically, we recommend that forecasts are updated at least quarterly to take into account any new information that impacts the business. A forecast tells you in a very short period of time where you are going.
What is a good method for budgeting?
- (1) You start with an organizational chart to find out who’s doing what and what the financial and non-financial outcomes are. If you can, separate them into departments and get into departmental budgets. Put budgets together that are expectations and hold people accountable for those numbers.
- (2) Once you have the budget(s), you can aggregate it into a forecasted Profit & Loss (P&L) statement. Don’t stop with the P&L, go back, test, and retest assumptions and then expand your budget to include the Balance Sheet and Cash Flow Statement. A big problem for business owners is they have a budgeted P&L, yet have not considered the cash needs to support growth, additional inventory or new equipment.
- (3) Once you have that budgeted P&L, Balance Sheet and Cash Flow Statement you know, not only what you’re going to do, but you know how you are going to make it happen? Discuss this in depth with your management team and get their feedback. Make tweaks as required. It is important to have the team buy into both the overall plan and their individual goals and metrics. Without this buy-in, you will often hear excuses later in the year. Remove this obstacle during the budgeting process.
December: Finalize your forecasts and budgets by December 15th so you’re ready to present these to the full organization or Board of Directors by late December or early January. This ensures you can hit the ground running in the new year.
Additional Things to Think About
Year-end is also an important time to consider some important, more immediate items:
- Cash flow forecasting
- Tax planning and distributions
- Bonuses for key employees
- Owner’s compensation
- Retirement planning
For great tips on year-end tax planning, year-end bonuses, and budget forecasting, watch more helpful videos here.