Using your financial records to set goals for 2019
As we enter into 2019, many small business owners are setting goals for what they want to accomplish for the new year. Goals are a great way to motivate you toward success, but I have to ask: how are you deciding on what goals you need to achieve?
For my first blog of 2019, I want to share four ways to use your financial statements such as your balance sheet and income statements to set and track your goals. Each of these four actions will enable you to be better prepared and informed for meeting your business goals.
Calculate your emergency fund
Every business no matter the size should have an emergency fund that will cover your business-related expenses if you have an emergency that forces you to slow or even cease operations. An emergency fund should be available to cover three to six months of your business operational expenses.
Most businesses have some expenses that are only paid annually such as insurance or professional dues. Using the below method will help you take those annual expenses into account!
Here is what you do: first, run your income statement for the entire previous year. Look at your total expenses and divide that by 12. Then, take that figure and multiply it by the number of months you want to save for, such as three, four, or even six months.
Calculate your cash reserves
You might be asking yourself, didn’t we just discuss this? Actually, no. Cash reserves and emergency funds are two related but different concepts. Cash reserves is the amount that you keep back for big purchases that are coming up such as if you need a new computer or some other item that will be more than, say $200.
Make a list of items you already know you will need to purchase in the coming year and, after looking at your income statement from the previous year, determine how much you can confidently set aside to save for that large expense.
Set your sales goals
I’ve talked before on my blog about how your financial records can help you establish sales goals. Look at the sales section of your income statement and first look at what products or services brought in the most money to the business. How much income was produced by that product or service? You can then use that information to create realistic sales goals for the upcoming year.
You can also use your income statement to see what products or services make the least amount of money. Use that information to decide if you should get rid of those products or services and focus on what makes you the most money. Or, you can use the same information to decide if you have under-performing services that you want to perhaps continue and funnel more marketing dollars towards achieving goals for that area.
Better manage expenses
You can also use your financial records from 2018 to better manage your 2019 expenses, thus increasing your profit margin. Again, take a look at your income statement for the year. What were your largest expenses? Is there a way to reduce or even eradicate those? Are there other, smaller expenses that are no longer relevant? Remember, a large number of small expenses can add up quickly.
Let me help
Everyone of us who owns our own business has their “why” and their passion. But realistically, we also need to earn money in our business. Using financial records to set and track goals is an excellent way to make your business more sustainable for many years to come.
I can help you better understand your previous financial statements and can help you maintain your bookkeeping in 2019 to make future goal setting much easier and more effective. Do you want your small business to be more sustainable and to even grow year over year? You know your products and services and I know bookkeeping. Let’s work together to help you achieve your business dreams.