Planning for a Successful 2023 Part 2

cash flow financial best practices planning scale your business Oct 10, 2022
Planning for a Successful 2023 Part 2


[Listen to the Podcast version here]


Last week, we talked about setting yourself up for success for next year by creating a structure to start your planning and gathering some key pieces of information. Then we discussed the four primary types of sales forecasts and some strategies to draft your sales forecast for next year.

If you missed last week’s article, I highly recommend going back and reading it first before continuing here. It’s really important to start with the sales forecast first so you have a baseline to determine what you need to do from a planning perspective to hit your revenue goal!

And remember – your revenue goal and your sales forecast probably won’t be the same amount! Do you remember why?

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

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

Your strategic plan will determine how you intend to bridge the gap between the two.

Let’s dive deeper into that now.


9 Questions for Your Strategic Planning

There are several questions that you can ask to move through the strategic planning process to determine how you will bridge the gap between your sales forecast and sales goal.


No. 1 - How much do you think you can increase sales to your current customers?

Look at your current sales forecast for your customers. Is there an opportunity to sell them more than you’ve forecasted? If so, crunch some numbers and see how much you think you can add to your forecast.


No. 2 - How many new customers do you think you’ll need?

After you’ve adjusted your sales forecast for the additional sales to your current customers, how much of your sales gap is left? Based on your average sales per customer, how many customers would you need to add? Or, if there’s a particular product or service you want to sell more of, how many customers would you need to sell that product or service to?


No. 3 - Are your products & services priced competitively?

I want to be clear here – when I say competitively, I don’t mean are you the cheapest or are you undercutting a competitor by $10 to try and make a sale. What I want you to think about is:

  •  When was the last time you evaluated your pricing structure?
  •  Are you charging what your product or service is worth?
  •  Are you priced to position yourself where you want to be in your market?


No. 4 - Are there other products & services you could add that are cost-effective?

Look at your current products and services. How can you supplement what you are already offering without increasing your costs significantly? Is there a course that you could record? Or templates that you could create? Or a service package to increase support?


No. 5 - Can your current sales team handle the additional sales load?

This ties back to the first two questions. It takes additional time and effort to sell more to your current customers as well as prospecting and closing new customers. Understanding the capacity of your sales team is important here – every industry is different, so there’s no hard rule on how many customers you can support per sales rep.

Take some time to analyze the number of activities and the time it takes to make the first sale with a new customer. Then look at how much time is spent nurturing current customers. This will give you an idea of how many customers your sales reps can handle before performance starts to drop.


No. 6 - Do you have the right support team in place once the sales are closed?

It’s not just your sales team that you need to worry about. Once the sale is won, who else is involved to get your product or service delivered? Do you have admins, customer service reps, bookkeepers, ops specialists, or logistics reps?

Using the same methodology as with your sales reps – does your current support team have the capacity to handle the additional sales load well? If not, you may need to hire people and/or consider how the work is being done to find efficiencies.


No. 7 - Can your current systems and processes handle the additional work volume?

It’s normal to have a hodgepodge of systems as you grow through the start up phase. When you realize you need a new piece of software, you go get what you need and add it in. The problem with this is that your software may not communicate well or at all. This leads to a lot of manual work arounds to get information from one system to another - lost time, lost money, lost data quality.

As you grow, you should evaluate these systems – eventually, the cost of lost time and efficiency will hurt more than implementing new software that can support your current capacity and future growth. Research 3 or 4 different software and choose the one that best fits where you are now and where you want to grow. Include your team in the evaluation process – they will know better than you most of the time what is needed to get their jobs done faster!


No. 8 - Will quality, timeliness and your culture remain high if you don’t make any changes?

If you’re hesitant to spend money investing in your team and systems, think about how long you can continue to operate this way before performance starts to suffer. When your company operates too close to capacity or is truly overloaded, quality and timeliness will decline, your employees will struggle to keep up, and may decide to leave.


No. 9 - What are the additional costs related to the increase in sales? 

Now that you’ve done the work to see what it’s going to take to reach your sales goal, it’s time to add up how much it’s going to cost you to get there. Go back through your answers and assign costs to each:

  •  Do you need to hire people?
  •  Do you need to purchase new software & train your employees?
  •  Do you need to purchase new equipment?
  •  What are the additional sales commissions you would owe?
  •  How much would you need to spend in advertising?
  •  How much would your cost of goods sold increase?
  •  What other expenses would increase and by how much?


Getting More Sales is Only Part of the Answer

One key mistake many business owners make is assuming that getting the sale is all you need to do, and the rest will sort itself out. This is true up to a certain point, but if you push it too far, your systems, processes and people will break.

When it happens, it will be painful and expensive.

Think about what it would look like if your key people quit because they were burned out and felt unappreciated.

Think about what it would look like if you lost a couple of your big customers because orders were late, or quality was poor.

Or a customer or employee decided to take legal action against you.

Taking the time up front to analyze what you need and creating a timeline to add resources to support your goals will save you so much time, frustration, and money in the long run.


Flexibility in Planning

I’m focusing here on just one year, but you can do this for longer periods. Many companies have a 5- or 10-year goal and then break that down into annual plans. These goals are re-evaluated over time and adjusted based on performance and changes in the market.

If you’re not sure about the answers to the questions I listed before, that’s ok. Don’t expect to know the answers right off the bat. You may have people in your business that can help you gather information to review and there are consultants available, like myself, that are familiar with the process and can help you put your plan together.

Something to keep in mind as you’re working through this – your plan is just that – a plan. It’s what you intend to do to accomplish your goals based on what you know right now and what you think you can make happen.

Plans are not set in stone.

If your market changes – hello pandemic, inflation, recession – your plan will change, too. Your plan is meant to guide you, but if things change, update the plan. This doesn’t mean though that you should give into shiny object syndrome and shift gears every couple of months because you had a new, great idea. Before you make changes, you should go through the process again to understand the potential impacts of what you want to do. Too much upheaval can fatigue an organization very quickly. Constantly shifting priorities will exhaust your employees, customers, and vendors, so be careful not to get caught up in the moment!


Operating Budget

Once you’ve decided what you need to do to meet your goal, you can start the budgeting process.

You’ll have at least one budget, maybe two.

The first is your Operating Budget.

Your Operating Budget looks similar to your Income Statement because its purpose is to forecast your sales, expenses, and net income for the year. Costs are typically broken down into two types – fixed and variable.

Fixed costs are operating costs that you’ll have no matter what you sell like rent and subscriptions.

Variable costs are costs that change depending on how much you sell like sales commissions, materials, freight, and credit card processing fees.

Remember last week when I asked you to decide what your profit goal was for the year?

This is where that comes into play.

When your Operating Budget is complete, check the projected net income.

Is it in line with your profit goal or do you need to make some adjustments?

If the projected net income is not acceptable to you, then you have to decide how you will make up the difference.

Are there expenses you can reduce without affecting efficiency and quality?

How much more would you need to sell? Don’t forget about the variable costs when calculating this.

You can always go back to the planning questions to help determine any impacts if you need to increase your revenue goal.


Capital Budget

After putting together the Operating Budget, it’s time to look at the Capital Budget.

If you Google Capital Budgets, you’re going to come across some pretty heavy articles describing how to calculate the ROI of capital projects and if you’re anything like me, your head is going to hurt.

If you’re looking to purchase heavy equipment, machinery, buildings or land, then looking at the ROI on those purchases is critical to making the business case whether it’s a good idea or not.

When I’m talking about Capital Budgets here, I’m thinking specifically of my service-based clients who don’t have expenditures like that – their process is much easier.

Typically, what we look at are costs like buying computers, desks, and the like for new employees. Or if they need to expand their rental space and need to pay for some of the buildout costs for the expansion. These costs could be classified as Assets on the Balance Sheet depending on the type and amount, so they wouldn’t show up in the Operating Budget.

These costs won’t affect your net income, but they do impact your cash flow and your financial ratios, so it’s important to understand what the costs are and when you expect to pay them.


Moving Forward

To recap:

  • You’ve selected your revenue goal and net profit goal
  • You’ve built your sales forecast
  • You’ve created a plan to close the gap between your revenue goal and forecasted sales
  • You’ve drafted your Operating Budget and your Capital Budget if you need one

With all these in place, you’re leaps and bounds ahead of most small businesses who don’t have a planning process in place to help them succeed!

From here, it’s doing the work, tracking your results and determining what changes you need to make along the way!


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


Ready to see how the Cash Flow Ignition Method can turbocharge your cash flow and put you on the fast-track to success?

Learn how my method can help you:

  • Develop a clear picture of what success means for you
  • Make snappy, confident decisions that kick your cash flow into high gear
  • Run your operations like a well-oiled machine, no firefighting needed
  • Shift gears with ease as business needs change