Times are constantly changing, and as business owners we need to stay tuned in to what’s coming next. This year has seen predictions ranging from horrible economic instability to mild adjustments in the economy and everything in between. How do we know what to believe?
The truth is no one can accurately predict the future. But we can do our best to evaluate how our business is trending and what we can possibly expect in the coming months.
Every business is unique, and every industry has its own ups and downs. During any given period, one industry could be thriving while another is suffering. And, even if an industry as a whole is not doing well, certain sectors or individual businesses within that industry could be doing fine.
Understanding your own business and keeping abreast of how it is doing will help you make needed adjustments to avoid horrible downswings.
If you’re in an industry that is not doing well, like the insurance market in California, then you may need to make changes to avoid possible financial crisis. For example, you should evaluate all your expenses and trim wherever you can. Hopefully that won’t mean laying people off, but sometimes that is a better option than waiting and hoping that things turn around only to end up in the red. If you get to that point, then harder decisions will be required.
The other way to address negative sales trends is to evaluate how to increase revenue. If sales are down, then raising prices is not your best option. Look instead to find a way to increase sales volume, whether that’s expanding your list of products or services, increasing your marketing efforts, or offering promotional discounts for new clients. Sometimes you must get creative and think outside the box to bring in new business.
The key is knowing what’s going on in your business. Watching industry trends may help you predict what to expect to some degree, but even those can vary by location and other factors.
Keeping track of your sales, COGS (cost of goods sold), and expenses carefully will give you good data to use to evaluate what’s happening in your business. Are your sales trending up but costs trending down? That’s a good combination. However, if sales are trending down and costs are rising, then you have a shrinking margin which leaves less for you to cover operating expenses, pay down debt, and take distributions. Either way, you can determine what your next best steps should be.
Don’t wait until the end of the year to look at your financials. Look at them every month and evaluate where things appear to be headed.
If you have a business that has seasonal swings, then the best way to determine how you are trending is to compare this year’s information to last year’s. If you compare your current sales, COGS, and expenses to last year’s data, you’ll be able to see if you are trending up, down, or are staying fairly flat.
Other variables can come into play as well such as the age of your business. Most businesses grow quickly at the beginning but sometimes it takes a year or two to get well established before you start to see increases. Some businesses have been around a long time and are considered “cash cows,” meaning they bring in good stable income but aren’t growing quickly. Thinking slow and steady wins the race.
Knowing and understanding where you are in the lifecycle of your business will help you determine if you are being negatively affected by more universal economic factors.
Once you’ve reviewed your financials carefully to figure out how your business is currently doing, evaluated how your industry as a whole is doing, and taken into consideration any local variables, then it is time to strategize.
Remember the old saying, those who fail to plan, plan to fail?
Don’t get caught unawares. Spend time reviewing all the data, then come up with a plan for what is needed to protect your business and have the most successful year you can have.
If you’re trending down as the year progresses, think about changes you can make now to ensure that you end the year in the black. If you see that you aren’t doing as well as you did last year in sales but that COGS are in line as a percentage of sales and you’re keeping expenses down, then you may end up with a lower net profit but still be doing well compared to your industry as a whole. In this case, staying the course may be the best plan. Keep a close eye on the numbers though as the year progresses and be prepared to make changes if things start to go south.
If you are doing well, maybe it’s time to think about stashing a little cash away in case things do turn down as the year wraps up.
The message here is not to assume because the news says a certain thing that your business will be impacted the way the economy trends have been predicted. Every industry has its own nuances. Different locations can be impacted differently, and each business is unique. Understanding how to evaluate what is happening in your business is what’s most important. Making decisions based on relevant information that comes directly from your business is more valuable than waiting until it is too late to make corrections. Stay ahead of market trends by using your company’s information to make strategic changes which will keep your company strong no matter what happens in the world at large.
Sherry Lutz Herrington is the owner of Sherrington Financial Fitness, a business consulting and accounting firm specializing in strategic business planning and solid financial accounting for businesses. She is also the author of Strong Women Thriving (www.strongwomenthriving.com), a blog which focuses on empowering women to be financially savvy, particularly after experiencing financial abuse. Sherry is currently writing a book that both shares her personal story and addresses financial abuse. She can be reached at email@example.com.
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