Planning for Profits

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In order to make your business profitable, you need to plan for profits

Each year, owners of small and medium-sized businesses receive annual reports from their CPA which are often long after the year ended, difficult for them to understand, don’t help them make business decisions, don’t help to plan for profit, or reflect what’s working or not working in their business. In this article, I’ll share with you five actions you can take that will help you plan for profits that you will be able to put your in hands.

Does this sound familiar to you?

Almost six months after your company’s year-end you met with your CPA to review last year’s financial statements. It was so long ago that you couldn’t remember the details and from what you did remember, the financial statements didn’t look at all like the reports your bookkeeper gave to you 30-days after the year-end.

When you looked at the statements from your CPA, they didn’t mean very much to you. You skipped over the Balance Sheet because you didn’t understand it and went right to the Income Statement where you saw that your sales were higher or lower than last year and you could see if you made any profit.

If there was a profit, you probably asked yourself, “where is that money?” “Shouldn’t I be able to put my hands on it?”

One business owner I know asked her CPA, “How do I increase my business profits?” He answered, “increase sales.” This flippant remark made her feel dumb because it seemed like such an obvious answer. However, the glib comment was unhelpful, caused resentment and wasn’t even correct because increasing sales doesn’t necessarily cause profits to increase.

The CPA firm isn’t at fault in most cases.

The time between November and the end of March, (tax time), is the busiest part of the year for your CPA. So busy in fact, that your CPA doesn’t have much time to really get to know your business or properly advise you. In addition, most businesses are slow to get their year-end information to their CPA, causing a large backlog to form close to filing deadlines.

Is there a solution that will help me plan for profits?

How can you get timely, accurate and understandable information that will help you make sound decisions, truly understand what is working and what is not working in your business, and be in better control of annual profits?

Here are five steps you can take to plan your profits, measure business performance through the year, and help you to reach your targets.

  1. Create a monthly profit forecast and incorporate it into your financial statements. Be sure to include all the activities and resources needed to achieve the projection. You may need to understand where your business is making profits and where it isn’t. If your initial forecast doesn’t end up with your desired profit, then you will need to adjust expenses, sales, staffing and resources in the forecast plan to hit your targets. (Read “Determining Where Your Profits Are Made” in the October 2018 issue of The Wise Business Owner Gazette – go to profitablewisdom.com to subscribe and receive immediately)
  2. Create financial statements that include the monthly forecast and be sure to include financial ratios to indicate financial health and progress in reaching the targets you set.
  3. Have your bookkeeper, or with the help of a Part-time CFO, make journal entries to your monthly statements to record sales and related expenses in the same month and accrue expenses like depreciation and prepaid expenses. Adopt a policy and develop processes whereby accurate statements are delivered to you no more than one week after each month-end.
  4. Request that your CPA deliver your financial statements within one month of your year-end. In steps one, two and three, you are now receiving timely and accurate monthly financial information, which you can pass on to your CPA at year end. There will be very little work for your CPA, and you will get it from them much sooner. You may even negotiate a lower rate.
  5. Set aside your monthly profits in a separate bank account so that you can indeed put your hands on it and give yourself a much-deserved reward. Because you have done steps one through four above, you will be more likely to achieve your targets and your planned profits.

I explain everything you need to know to about finance to help you reach your goals in my course, Finance for the Non-Financial Leader.  Sign up for the classes today.

If you have any questions about Finance for the Non-Financial Leader or would like help implementing these five steps in your business, contact us at info@profitablewisdom.com or (226) 791-0374 and arrange a no-obligation conversation.