Planning for a Successful 2023 Part 1

cash flow planning process improvement scale your business Oct 03, 2022
Planning for a Successful 2023 Part 1


[Listen to the Podcast version here]


4th quarter has arrived!

It’s that time of year that business owners enjoy the most – planning for the next year!

You can read that as sarcasm or joy depending on how you feel about planning.

Me? I love planning!

Odds are, you’re busy handling the day to day of right now and might have thought about 2023 but don’t have anything tangible on paper yet.

If that’s the case, don’t panic.

You still have plenty of time to get your strategy together for 2023 and set yourself up for a great year! It’s going to take some work though, so get ready!


Getting started with the planning process


Before we dive into the how, we need to back up a bit and talk about the what.

  • What will you need to get started?
  • What exactly should your planning look like?
  • What order should you process things?


You might want to gather some reports like:

  • Total Sales for the last 3 years by month so you can look for sales patterns
  • Sales volumes by customer, by product/service or both depending on what makes sense for your business
  • Current sales forecast if you have one
  • Cost of goods sold information (material, freight, commissions, processing fees, etc.)
  • Operating expenses for the year
  • Commission plan agreements
  • Salesperson performance records
  • Payroll reports by department


At the very least, what you want to have when you’re done with your planning is:

  • Sales Forecast
  • Revenue goal
  • Net Income goal
  • Operating Budget
  • Capital Budget
  • Strategy to close the gap


Let’s get some numbers flowing!


Planning typically starts with some brainstorming.

The fun one for a lot of people is choosing a revenue goal.

Some play it safe.

They like a slow and steady approach and are willing to wait it out.

Others like to aim high and choose revenue targets that will push beyond current capabilities to grow faster.

The approach you take is up to you, but at the end of the day, you need to know what you’re working towards for everything else to fall in line.

Once you choose your revenue goal, then you need to look at your sales forecast.

If you don’t have one, don’t worry. I’m going to dive deeper into creating a sales forecast later in this article.


You might be wondering why you need a sales forecast if you’ve just selected a revenue goal…

The reason is because the two are not the same!

Your revenue goal is what you WANT TO SELL for the year.

Your sales forecast is what you are REASONABLY CERTAIN YOU CAN SELL.


Sales forecasts use a combination of data and intuition to determine the likelihood of closing an opportunity.

Your forecast might say you will have $500k in revenue for next year based on what you know right now. Your revenue goal could be $750k. The purpose of your plan is to determine how you will bridge the gap between the two.


The next thing you want to do is to decide what you want your net income to be for the year – in other words, how much money do you want to make in the business after all of your expenses?

This may seem a little backwards since we haven’t talked about expenses yet, but I like to have a number in mind beforehand. It acts as a gut check later to see if the business operates like you expected it to – before you actually do the work.

Here’s how:

You’ve decided on the top and bottom numbers – your revenue goal and your net income goal. Assuming you can reach the revenue goal, can you achieve it with the money you have left? If not, something has to change [you need to sell more, reduce expenses, or reduce your net income goal]


4 Types of Sales Forecasts


Now that we’ve covered the high-level planning process, let’s circle back to the sales forecast.

You might have read up on sales forecasts before. If you have, that might be why you don’t have one! There’s a lot of really great information out there on building sales forecasts, but it tends to get bogged down with technical terms and confusing formulas. I’m not going to do that today – or at least, do my best not to!


There are typically 4 stages in the evolution of a sales forecast before you have to get the finance geniuses involved.

The first is that back of the napkin, gut-feel forecast. You have a general idea of what you can sell based on some history and a few conversations, so you do some quick math and come up with a number. These forecasts are extremely unreliable and it’s almost impossible to remember later why you chose what you did.


The second stage is basing the next year on what you’ve done already and just adjusting it by a percentage. So, if you sold $100k last year, you could just add 20% on top and call it a day.

While this is slightly better than the first stage since it’s at least based on tangible sales, but it doesn’t consider anything that could change those results – like heading into a recession or the impact of rising costs or how long it takes to close a deal.


The third stage involves breaking your opportunities down into deal stages.

You’ll need to know what your deal stages are – basically where the potential sale is in the process.


Examples could be

  • Request for quote
  • Quoted
  • In review
  • Closed/Won or Closed/Lost


Then you would assign a percentage chance to close the sale for the prior stages.

  • Request for quote (5% chance to close)
  • Quoted (20% chance to close)
  • In review (40% chance to close)


Once you have that down, then you’d take the total amount of the opportunity (let’s say $100,000) and multiply it by the percentage of the stage it’s in (let’s say it’s in review for 40%) which gives you $40k worth of revenue you would count in the forecast.

You’re trying to adjust the value of the opportunities you have by the likelihood you will get the sale.


The fourth stage looks at your opportunities and adds a time component. For most industries, the longer an opportunity sits without action being taken, the colder it gets. So, you could assign an additional percentage reduction based on how old the opportunity is.

Going back to our example, we had $100k opportunity. But what if the opportunity is 60 days old and you have estimated that only 30% of opportunities that old will close? You’d take the $100k and multiply it by 30% to get $30k worth of revenue that you’d add to the forecast.

You could also see an additional dimension here for the type of opportunity. For example, cold leads vs. warm leads might have different close rates or you could compare different product lines if they don’t behave in a similar manner.

I know that’s a lot of math, but we can’t avoid it entirely!


Putting it into perspective…


Here’s one thing to keep in mind while you’re thinking about what kind of sales forecast you want to use – the more sophisticated your model is, the higher quality of data you will need for your forecast to be relevant.

You might be wondering how exactly do you go about determining the percentage chance to close? That's where data is going to come into play. You might not be at the point right now where you have really good data to make those decisions or know what kind of data you’d need to track to get there. And that's okay.


If you're at stage one, back where you're writing down some numbers on a scratch pad and you're just doing your best to estimate sales for next year…

I’m challenging you to move to stage two.

Take a look at your historical data plus whatever information you already have for next year and make some assumptions to determine your forecast for next year.


If you're already at stage two, where you're using historical data, then I’m challenging you to add in as part of your plan for next year, what you need to do to get the systems in place so that you'll be ready for 2024 to forecast by deal stages or by age of opportunity.

Choose which one you think is going to work best for your business. You can always switch later as you  continue improving your data systems. Having an accurate sales forecast gives you the foundation you need to build a strong operating budget and capital budget, so keep this in mind as you’re planning ahead.


It may take you a couple of years to work out all of the kinks and find the most efficient way for you to capture all of this data without spending more than it’s worth. There is a point where the return on improving data a little bit more gets exponentially expensive, so be careful when deciding how far to take it!


But what if you’re not tracking any opportunity information right now?

Or your deals close pretty quickly, so nothing you have right now would be relevant for next year?

Start having conversations with your customers and ask them what they’re thinking they’ll need from you next year. It will probably change, but at least you’ll have some feedback from them instead of just guessing on your own.

Then you can think about additional sales activities - adding new customers, adding new products or services, expanding sales to current customers – and estimate those sales as part of your forecast.

If you have recurring programs, look at the revenue you’ve already booked for the next year and think about where revenue would be if you continued to get the same results.


For example, if you have a monthly recurring program on a payment plan or a subscription service, then you have X amount of people that are subscribed times your monthly rate of Y to get total monthly revenue. Then you can look at how many people actually stick with the program and how long so you can adjust the revenue down to account for people leaving the program. If that continues at the same rate, then what is the revenue going to look like over the year as you're bringing new people into your membership or program?

You're not going to be a hundred percent and that's okay. What you're trying to do is forecast the best that you can with the resources you have right now, so you have an idea of what needs to go into your operating budget. Your operating budget will then influence your projected cash flow

Right now, we're just at stage one, looking at that sales forecast.

You’ll continue to revise your sales forecast on at least a quarterly basis, so over time, your forecast will be more accurate, relying more on data than intuition.


Coming up in Part 2


Next week, we’re going to continue the discussion by looking at operating budgets, capital budgets, and tack on a bit of strategy to get you started for next year!

Now, I know that sounds like a ton of fun, and you really just can't wait to pop in and learn about all those things, but I want you to take a minute and just think about what we've already covered today.

Do some brainstorming over the next week about what you'd actually like to do for your planning process and which sales forecast you think fits best for where your organization is today.

If you have any questions while you're going through that over the next week, just reach out and let me know!


Need help getting ready for next year?

Annual planning is only one part of the puzzle!

If you’re behind on your bookkeeping, tax payments, and/or filing your taxes, these need to be addressed as well!

The longer you wait, the more painful it will be.

Penalties and fees stack up quickly with the IRS.

Harrington Strategic Partners can help you get ready for tax season, even if you’re years behind!

We offer a wide range of services to streamline your accounting and let you focus on what you do best - manage and grow your business!

Popular services:

  • Catch Up Bookkeeping
  • Monthly Bookkeeping
  • Budgeting & Forecasting
  • Cash Flow Management
  • Strategic Planning
  • Process Development
  • Owner Coaching
  • Team Training

If accounting is not your cup of tea and you’re interested in how your company could benefit from working with an accounting firm, I’d love to chat! You can access my calendar here.

Unleash Your Cash Flow Potential


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  • Develop a clear picture of what success means for you
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