With the first quarter of the calendar year well underway, it’s time to look at setting up the year for success.
One of the biggest challenges we see in business is the lack of planning. In a lot of cases it’s because business owners don’t know how to plan or where to start with their planning.
This article will give you a crystal clear To Do list so you’ll know where to start, and then where to go from there.
Based on our experience in advising many businesses over the years, here’s a list of the 5 most important things to have in place for a successful year…
1. Accounting software that supports real-time reporting
To make key management decisions in your business, you need up-to-date financial information.And in modern business ‘up-to-date’ means ‘now’, not last month’s figures. Today’s figures.
One of the downfalls of traditional accounting software is how inefficient it is at maintaining the data. Bookkeepers have to share a single data file. They have to wait for bank statements, and then enter the information manually. And advisers need to ensure they have the correct software version to interpret the numbers.
And that means way too much lead time to produce even a standard report.
If you haven’t worked it out already, we love Xero. It solves many of these inefficiencies, and automates too many tasks to mention here. Once it’s set up and being used effectively, Xero can shorten the lead time on key management reports (and therefore decisions) to days.
If you choose only one suggestion from this list, we recommend this one hands down. It’s the perfect place to start.
2. Identifying Key Lead Indicators
One part of the planning process where many business owners come unstuck is working out what to aim for. In the book, “The 4 Disciplines of Execution”, co-author Sean Covey clearly explains the difference between lag and lead indicators. And business owners often get hung up on lag indicators such as revenue, profit and net cash. And that’s understandable, because it’s where the rubber hits the road, so to speak.
Unfortunately, they often forget to plan for how to get there–i.e. identifying the lead indicators that produce the lag indicators. For instance, revenue comes from converting leads, getting these new clients on board, and helping them with relevant products.
If you focus on moving your lead indicators, the lag indicators look after themselves. And that starts with knowing what your most important lead indicators are.
3. Revenue and Profit Potential
One process we take our clients through is identifying key indicators that make up their revenue, and how changes to those indicators will affect their overall profit.
Don’t just pull a figure out of the air. You need to work forwards from what lead indicators are achievable, and determine how it will affect your revenue and profit potential.
It’s a valuable process, because we can calculate ‘What if?’ scenarios for clients on the fly, and build realistic revenue and profit potential targets.
4. Budgets and Cash Flow Forecasts
Once you’ve determined your revenue and profit potential, it’s time to go into the numbers a little deeper.
Budgets are great for accountability and ensuring the business sticks to its goal, but the hidden gems are the cash flow forecasts. You can budget for a large profit for your business and still face considerable fluctuations in available cash from loan repayments, late payments from debtors, GST, superannuation, and so on. And they won’t necessarily align with the profit and loss budget.
Profit is theory. Cash is fact.
5. One Page Plan
Finally there’s the One Page Plan, which we not only recommend but use ourselves. Developed by Verne Harnish, this organisational tool helps you put all of your planning, key numbers, business roadmap and accountabilities on a single page. It gets everyone in the organisation on the same page as well (if you’ll pardon the pun).
The One Page Plan clarifies your:
– core values
– key objectives (both short- and long-term)
– management KPIs
– niche/target markets
– SWOT analysis
– key numbers (from three years down to 90 days).
In short, it’s a single resource that keeps everyone in the organisation super-focused and driving towards a clear and common goal.
So, it’s almost the end of January. How do you stack up against these 5 key areas? If you’re only a 1 or 2 out of 5, or even a zero, don’t fret. As they say, the first step in solving a problem is recognising and defining it.
And then… taking action.
Implement each of these in your business and you will add considerable value to your business. And we’d love to help you follow them. That’s what lights our fire. Leading and inspiring business owners to produce better results. Tax and accounting is important, sure. We’re great at that, but what will put you, your business and your family in a dramatically better financial position in a year’s time, will be implementing management systems and practices such as those I’ve listed above.
So… go for it. The year won’t wait for you. It’s time to swing into action.
We’ll explore these topics in more depth in the coming weeks so you can develop your business to its next level of performance.