As the year draws to a close, it’s natural to start thinking about how to grow your business in 2012. But before you make any plans, take stock of your financial situation, says Leanne Hoagland-Smith, author of Be the Red Jacket in a Sea of Gray Suits and a Chicago-area business consultant and coach. “You need to look at the numbers to make sure you’re moving forward and not just treading water — or worse, drowning.” She recommends asking (and answering) the following five questions to evaluate how your business is doing as 2012 arrives.
- How did this year’s sales compare with sales in the past 3 to 5 years? Rather than skimming the numbers from last year, focus on figures from the past few years (if your business has that long of a history). By tracking performance over time, you’ll be able to spot trends, Hoagland-Smith explains. “You can predict, based on the analysis, what will happen in the future.”
- How did this year’s profits compare with profits in the past 3 to 5 years? Profitability is another word for sustainability, Hoagland-Smith notes. If your business is profitable, the likelihood that it will be sustainable is much greater. Measuring profitability is relatively simple: Add up revenues and then subtract expenditures. Because your goal is to maximize revenue and minimize expenses, reducing costs — even in small increments — will help build profits. For example, if you regularly use printer cartridges and then throw them away, consider signing up for a recycling program; OfficeMax grants up to $60 in rewards per month for used printer cartridges.
- Did the business meet its goals? Did you reach the 2011 goals you set in sales, marketing, customers, innovation, management, and finances? Didn’t have any goals? Now is a good time to set goals for 2012.
- Are repeat sales up, down, or flat? If they’re down, it’s time to build up that number. “Encouraging repeat business increases profitability, because you don’t have to spend profits to bring in new customers,” says Hoagland-Smith. Books like Fred Reichheld’s The Ultimate Question offer ideas for reaching out to current customers and building relationships with them.
- Is overall equity up, down, or constant? It’s easy for small-business owners to think their business is more valuable than it is, says Hoagland-Smith, especially when you put in long hours. Taking time to pore over your balance statements can give you a more accurate perspective. Consider items such as your property’s worth, sales figures, and current customer base. Should you decide to sell the company in the future, you’ll have a better idea of its market value. In the meantime, it will help you make sure those hours you’re putting in are paying off.