Every business, large or small, needs an annual plan. Have you started yours for the coming year?
It’s difficult to keep your business and its finances on track without one. But merely creating a plan is not enough. It has to be thorough and realistic.
Many business owners hesitate at planning because they’re unclear about what an annual plan should include. They’re right to be cautious. After all, there are a number of common mistakes that creep into annual planning. Fortunately, there are ways to avoid them.
Importance of Creating an Annual Plan
Where is your business going next year? Where do you hope to be at year-end? Without an annual plan, without that vital road map to guide you, you have less chance of reaching your goals. As the year unfolds, you’re going to be faced with several major decisions. With a plan in place, you can more readily make choices that align with your goals.
However, if you make some of the common mistakes, the annual plan simply won’t be as useful in keeping you on track. During the planning process, it’s best to follow some guidelines to ensure that all critical aspects of your plan are in place. If you’re uncertain about how to proceed, a good accounting partner can be helpful.
Skipping a Year-End Assessment
Year-end is a busy time, and you may be tempted to shortchange your year-end assessment and focus on the year to come. However, it’s impossible to be certain of where you’re going unless you understand where you are now and how you got there.
Look at your financial numbers. Analyze why they are what they are. Consider which ones can be improved and how they can be improved.
Assuming you used an annual plan for the year you’re closing out, review it. How did it work for you? What parts were useful, and what didn’t help? Decide how much of your old plan you should carry over.
Not Including a Tax Plan
If you wait until the middle of next year to start thinking about taxes, you may lose your best opportunity to maximize your business’s tax advantages. Many of the decisions you make throughout the coming year will make your tax bill either higher or lower. These include the timing of expenditures as well as recognizing and taking advantage of deduction and credit opportunities.
With a good annual tax plan:
You’ll save money
Reduce liability
Increase your opportunities
After all, the less money you turn over to taxing authorities, the more you have to invest in the future of your business.
Excluding a Yearly Budget
How much money can you spend next year? Will you operate within your means? What is your plan to meet unexpected expenses? How will you react if business is better than you expected? You can’t know any of these things unless you have a budget. If your plan doesn’t tell you how you’ll allocate your dollars, it’s little better than no plan at all.
Your budget tells you how much revenue you expect and how you plan to spend it. As the year rolls out, you’ll be continuously comparing your actual revenues and expenses against that budget. With a realistic budget, you can effectively plan to overcome shortfalls or to wisely invest overages.
Making an Annual Plan and Not Using It
Making an annual plan takes some effort, and when you’re finished you’re justified in patting yourself on the back. But the plan isn’t a piece of artwork to be put on the wall and admired. It’s of little value if you don’t follow through and use it.
Your plan tells you what your priorities are and drives your decision-making. You’ll review actual progress against your plan as you move through the year. An important part of this is collecting and analyzing the data around:
Sales
Marketing
Customer involvement
The better the data you have, the better you’ll deploy the resources you have. Your plan should be a living entity, to be used and even modified as conditions unfold.
Not Working with a Trusted Accountant
If you’re new to annual planning, there’s a lot to understand before you can build an effective plan. Even if you’ve been doing annual planning for years, there may be strategies and best practices you don’t know about. Every business can use an extra set of eyes on its plan.
That’s where a trusted accountant comes in. SIMPLY Financials PLUS is the accountant that does more than just compliance and bookkeeping. We not only keep your financials in order but also know how to create the big picture of where your business is and where it’s going.
Contact us online or call 203-614-8396 to learn how we can help with an annual plan that will boost your profits and improve your business.