After 30 years consulting with business clients, one thing I’ve noticed repeatedly is that successful owners know the day-to-day details of their business better than anyone else.
They will often tell you, down to the penny, how much is in the bank or the balance each customer owes them. One client, with 35 employees, can offer details of who is absent on any given day and why.
However, business owners are often so immersed in the day-to-day grind of running their operations that they overlook the importance of stepping back to plan. Taking the time to make incremental, strategic changes can lead to significant growth in both net profits and personal wealth over time.
A good time to implement new ideas is at the start of the year, when your team is refreshed and motivated and when your customers and vendors might be expecting changes.
Here are a few ideas, including some time-saving tips, to get started.
Update your pricing
The first of the year is a natural time to increase prices. We’ve all heard about how high inflation has been over the past few years. If your pricing has not kept pace with inflation, you could be losing money.
I like using a simple inflation calculator, which can be found easily online with a simple Google search.
For example, if the billable hourly rate for a technician was $125 an hour, and the last time you raised the rate was January 2021, the calculator will tell you that the rate today, adjusted for inflation, is $145.62, an increase of 16.5%. Try it with some of your prices or hourly rates to see if your pricing is keeping pace with the economy.
If you raised your prices after COVID-19, and they seem high or if the number above seems out of whack, perform a reality check and adjust the amount to what your customers or clients will pay.
Many trade associations and journals produce pricing surveys that can give you the high and low amounts. Also, it is a good idea for someone to call your competitors to see what they are charging.
A good rule of thumb I use is that if customers are not trying to negotiate or are not complaining about the cost, your prices might be too low.
Launch a marketing plan
Very few businesses have a written marketing plan. Usually, the owner will put up a website, maybe do a little advertising, join the chamber or a referral club, learn the elevator speech, and go to a few meetings.
If you hate marketing (like I do) or don’t want to invest too much time on it, The 1-Page Marketing Plan by Allan Dib might be for you. The book is only 225 pages long, and it’s free on Kindle Unlimited. In a nutshell: the amount of writing required to prepare your plan is only one page.
When we value a business, and it does not have a marketing plan, it reduces the amount it is worth. So, if you want to sell your company eventually, you might want to consider implementing one.
When establishing value, we also look at whether the company’s website is out of date, if there are not many Yelp or Google reviews, or if the reviews are low.
Give yourself benefits
Many business owners are not as personally wealthy as they could be because they neglect to include adequate pay and benefits for themselves in their operations.
Only a third of small business owners have a retirement plan. This is understandable because they get so caught up in making enough to pay the bills and their employees that they fail to budget for their own needs.
The first of the year is a great time to implement a plan to become more profitable and to increase your pay and benefits, especially your retirement contributions.
A CFP or CPA can help you budget to make sure you are paying yourself the benefits you deserve and can guide you to choose the best individually tailored plan.
For example, if you are self-employed, the SEP IRA maximum is $70k, based on 25% of your compensation, or up to $280k ($70k x 4). After formulating a budget with your professional, divide the amount you want to contribute annually by 12 and set aside the funds monthly. Vow not to use these funds for the business. This account is to secure your future.
When you visit your financial professional to talk about benefits, bring comparative financial reports, preferably showing five years of activity, with you.
As a business owner, you should always have access to these summary reports. If your accounting program cannot generate a comparative income statement, ask your accountant or tax advisor to “spread” your tax return data for the past few years in Excel. They can also help you analyze and understand the reports to make positive, strategic changes.
Thanksgiving and the start of the holiday season remind us to pause and appreciate all we have been given and been able to accomplish. Only half of small businesses survive the first five years, so congratulations on your accomplishments so far. Before the holiday rush takes over, spend some time on year-end planning. With just a little effort now, you can head into the new year ready to build on the success you are grateful for today.
Michelle C. Herting is a CPA, accredited in business valuations, and an accredited estate planner specializing in succession planning and estate, gift, and trust taxes.
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