I”™m starting to think about 2012. We went into last winter way too thin, financially. I expect expenses will go up, health care especially. Meanwhile, I want to hire a national sales person. Any suggestions to start 2012 on a high note?
It can be especially difficult to plan, given the number of variables business owners face. Costs are increasing. Health care is in transition. Revenue swings up and down, sometimes erratically. There”™s uncertainty about where the economy is going. Opportunities are cropping up. And the cushion that many businesses had in cash on hand and back-up lines of credit is way down.
When planning for 2012, it”™s all about making the business healthy. That includes paying taxes, building reserves, paying down debt and carefully predicting cash flow. One more thing ”“ especially in turbulent times ”“ take limited, calculated risks.
Many business owners go to extraordinary lengths to avoid tax payments. They run up expenses in order to lower the tax bill. Usually that results in a cash crunch the first half of the upcoming year. Money is needed elsewhere and no longer available. Business growth stalls for lack of funds.
Business owners also take profits out of the business, in the form of distributions. The profits go into personal checking and savings. In time of need, the business asks for the money back, only to find it was put to use elsewhere.
Entrepreneurs, as a group, tend to be optimists. That includes looking on the bright side when planning cash flow. Plan instead on things going wrong. Conserve cash inside the company, as if it is the most precious resource you have ”“ because it is.
When doing year-end planning, focus on reserve building as a strategy. Plan to put a third of profits into spending for growth and development. Use a third to pay down debt, more slowly than you might otherwise like to do. Keep a third on hand in an emergency fund.
Build a plan now of how you think 2012 will play out. Ask yourself the following questions, as if you were an outside investor. Then put your money behind the winning answers.
Ӣ What business lines will be the most profitable?
Ӣ What products or services will represent growth in 2012-2015?
Ӣ What can I do in the fourth quarter to set up for a great first half of 2012?
Ӣ What could go wrong in 2012 and how much could it cost me to fix those problems?
Ӣ How much do I need to put into reserves so IӪd have three months of expenses on hand in case things go wrong?
Ӣ What is the companyӪs ratio of current assets to current liabilities? What can I do to get the ratio well above 200 percent?
In 2012 it will be all about building up cash on hand, inside the business, so your company has options. Lending couldn”™t get much tighter for small businesses. Don”™t expect lenders to help you out if you run short of funds. It”™s all about being conservative, having a plan to self-fund business growth and proving you can do exactly that.
Keep a lid on risks. Remember that according to business guru Peter Drucker, more businesses go out of business from too much growth as opposed to too little. You can”™t do everything you want to do at once, and neither can your business.
Looking for a good book? Try “Successful Business Plan: Secrets and Strategies” by Rhonda Abrams and John Doerr.
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. Questions may be e-mailed to her at AskAndi@StrategyLeaders.com or mailed to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Phone: 877-238-3535. Visit www.AskAndi.com for archived articles.
