Welcome to 2022 or as some are saying, 2020-two (eep!). If you’ve been in the thick of school holidays, lockdown/isolation and haven’t yet mapped out the year ahead, you’re in the right place! Today I want to show you how you can use your results in 2021 to make the right decisions for your business this year. Read on to learn how to set yourself up for success in 2022.
2021 In Review
#TruthBomb – you can’t move forward until you look back.
Taking the time to really analyse the previous year allows you to make informed, smart decisions for your business moving forward. For a birdseye view of your business financials, you can’t go past a profit and loss report.
If you are using Xero, the good news is it’s an easy process.
- Click on the ‘Accounting’ tab under reports and select ‘Reports’
- You’ll get a range of reports to choose from, select ‘Profit and Loss’
- In the date range box, choose 1st January 2021 to 31st December 2021
- If you like, you can compare the report to the year before too
Hot Tip – change the report to ‘Cash’ if that is how you do your reporting as it will default to ‘Accrual’. Not sure which you are or what that means? My video here quickly explains the two.
Once you have your Profit & Loss Statement for the calendar year you can get busy finding the gaps and growth opportunities. First of all, let’s take a look at your sales (your revenue or income).
Your P&L statement will give you a monthly total and if you click on any of the blue line item numbers of your sales amounts, you can drill down and see exactly what that total is made up of.
Take note of:
- The good months: what made them so lucrative? Grab a pen and paper and jot down why you had a good month. Think back to promotions, sales, new product launches, client growth and note it all down. Or was there even a price increase?
- The not so good months: now it’s time to dig deep and own what happened over the bad months. Did you have product shortages, lower marketing spend (FB Ads etc) or even a reduced capacity (staff on leave or sick)? Were you self sabotaging somehow by not showing up in your business?
Now you’ve got a solid grasp of what helped made you profitable (or not) let’s look at your expenses.
Analyse your expenses
Balancing expenses is a delicate game. If you spend too much too soon – or on the wrong areas, this can really eat into your growth. On the flip side, if you’re not spending enough or strategically, you won’t see your business flourish. Heard the saying you need to spend money to make money? Confusing hey!
Not sure how to know? Grab a pen and paper and let’s get started. Again, your profit and loss will show your total expenses per month with a breakdown of what they were.
- Start with the big ones: scroll through your report and identify what your business spends the most on. You can click on the blue totals to get the nitty gritty. Note down any important ones you need to change for 2022.
- Subscriptions: There’s no better time than now to pulse check your subscriptions. Write down all of them and if you cancel any you don’t use, or go to a lower plan to suit your needs – do it!
- Marketing: Review your marketing spend each month so you can see how this impacted your income. For example if you didn’t spend any, were your sales extremely low? This is one of those important ones that more often than not are key to increasing your income.
Find the wins and learnings
Now that you’ve got a good understanding of your profit and your loss, it’s time to put it all together to get an accurate understanding of your year.
Scroll down to the bottom of your report and look through your total operating expenses against your NET Profit.
First let’s look at:
- Low Operating Expenses and low NET Profit: This shows you didn’t have many sales. You also didn’t grow and didn’t spend. Are they correlated? Maybe.
- High Operating Expenses and high NET Profit: This would show your sales were high AND you covered all your expenses. Yay!
- High Operating Expenses and low NET Profit (or loss): Red Flag! Was it an investment that will pay off down the track that caused this or did you overspend and not reap the rewards?
Get ready for an amazing 2022
Now that you have some great key areas you’ve pinpointed, your wins and opportunities from 2021 in hand, you can make smart decisions for the year ahead. Based on your profit, loss, learnings and opportunities create a monthly plan of what you’d like to achieve.
Be sure to include:
- Goals: What are your stretch goals? What did you see that worked well to do it more regularly. Or what really hindered your growth to avoid. What do you need to make these a reality? Write it all down including stock, time, income, support so you can allow for it.
- Profit: how much do you want to bring in over the year and monthly? Consider looking at 2021 data and forecasting for 2022. This will all depend on your stock, promotional plans, availability, pricing and strategy so make note of HOW you plan to make that money.
- Expenses: If you over/underspent in your business in 2021, find the gaps and address how this year will be different. Will you need to hire more support? What will that cost? Will you be decreasing costs in any area without? How will this impact your business overall? Making sure changes won’t negatively impact you? Expenses are a good thing however, they must be strategised to support your growth.
Now that you have a good overview of your financial position and what you need to do in ‘22, it’s time to smash through that glass ceiling.
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