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Financial planning for the coming year is a task you might be very tempted to put aside, especially if it’s something that doesn’t come so naturally to you. But ignoring the problem won’t make it go away. In fact, by doing so, you’re much more likely to fall into bad financial habits that can have long-term repercussions for your business.
Good financial management will save you time, money and stress, helping you prioritize spending, make informed spending decisions and allocate resources effectively. With that in mind, here are nine key things to keep in mind when planning your finances ahead of 2023.
1. Invest in growth opportunities
Short-term cost reduction should never come at the expense of long-term business growth. As you look to 2023, be sure to consider opportunities for growth and set aside some cash to invest in them properly. A commitment to growing your business will drive innovation, profits, employee retention and customer satisfaction.
2. Ask for loans when you need them
Many of us have been conditioned to fear business loans and avoid them at all costs. Not only is the application process often lengthy, but taking out a loan presents several risks and limits your flexibility to run your business exactly the way you want.
Nevertheless, business loans can be extremely beneficial. Indeed, the Small Business American Dream Gap Report found that 26% of business owners who failed to secure a loan ultimately gave up on growing their business because they didn’t have the money for it. To do.
Don’t be afraid to take out a loan if and when you need it, as long as you’ve worked out the numbers and figured out how it will benefit your business. You can, for example, use the extra money to open another location, hire more employees, purchase additional inventory, or launch a new product line.
3. Watch your trade credit closely
If you decide to take out a loan or invest in commercial real estate in 2023, you will need to have a good credit score.
Banks will refuse your loan applications if your credit rating is low, but it is possible to improve it. Checking your credit report monthly, reducing your credit card spending, increasing your credit limit, and paying your bills on time are a few ways to do this.
4. Spread tax payments more evenly throughout the year
To make the tax filing process more transparent, be sure to open a separate checking account and set aside your tax money each month.
While most small businesses are required to pay taxes quarterly, you have the option of making monthly payments. This is a good option if you’re struggling to stick to your budget or find yourself repeatedly dipping into money you’ve set aside for taxes.
5. Revise your books once a month
The more you dislike the financial management aspect of running a business, the more important it is to dedicate time at least once a month to reviewing and tracking your books. You will soon become familiar with how your finances work, perform work more efficiently, and spot errors in your bookkeeping.
Good bookkeeping also helps you budget effectively, file your taxes, and keep your financial records in order.
6. Produce a profit and loss statement for the coming year
Work with an accountant to produce a 2023 P&L statement, showing both your expenses and sales in 2022 and your projections for the coming year. This statement will need to be updated and amended as things change within your business, but it can serve as a useful reference early in the coming year.
7. Produce a budgeted statement of cash flows
A cash flow statement lets you keep a close eye on your business’s cash flow by tracking the inflows and outflows of money. This will help you make informed decisions about your expenses, investments, and short-term business planning.
Cash flow projections can help you identify areas where you can cut costs, your biggest expenses, and investments you can afford to make in the near future. Maybe you don’t have enough resources to invest in new employees or additional inventory right now, but making some changes, or maybe waiting for a new customer to arrive, might get you there. To do.
8. Focus on the short term
You can do everything in your power to anticipate 2023 but, as we have learned in recent years, nothing is certain. Since the outbreak of COVID-19, businesses have had to deal with an array of highly disruptive factors, including significant supply chain delays and erratic consumer demands. This makes it very difficult to budget for the long term with confidence and certainty.
While writing a business plan and budget for 2023 is certainly helpful, make sure your short-term finances are stable and orderly above all else. You don’t want to rely on an increase in customer spending that you enjoyed last year to get you through the next.
9. Plan for the worst
Even when your business is thriving, it’s important to plan for the worst-case scenario and implement contingency strategies. What happens if a supplier goes bankrupt, a high performing employee quits, or you lose a high value customer? A solid backup plan could ultimately mean the difference between staying afloat or sinking if and when disaster strikes.
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