Many businesses see this year as their “comeback year” after struggling to keep things afloat over the past couple of years of a global pandemic. It is also the perfect time to grow your business as new opportunities are popping up constantly and there’s no better time to grab them.
By setting goals for the year, you will have a clear idea of what you are working towards. This way, you and your team will be able to be more efficient in tasks like setting budgets, forecast projections, and drawing up a roadmap of how you should proceed with your business. This is a long-term process and one that involves the whole company, so make sure to get everyone’s input and ideas.
Predicting your future income and expenses is a basic prerequisite for a good budget, and a budget is an essential stepping stone to setting your company up for success. All businesses want to grow, but it is important to be realistic about what you can achieve by making the best use of the resources available to you. Here are 4 fundamental actions you should be taking with the goal of growing your business in 2022.
Identify the KPIs
Key Performance Indicators or KPIs are a way to assess the business’s performance over time. It is an evaluation of how well the business has been achieving its targets and objectives and how it measures up against its competitors. It is important to identify your KPIs so that you can make plans for your future that will actually work.
KPIs are an important aspect that investors and stakeholders focus on when evaluating the business. They will also consider other key metrics like gross margins and business expenses as they show how healthy the business model is, painting a bigger picture of long-term performance instead of looking at short-term profits which may be low due to things like marketing expenses.
You can start off your budget by setting benchmarks based on performances by similarly-sized companies in your industry in your city or state. Then you can bring in the numbers from your past performances to determine how much you can expect to bring in next year. By deducting your expected expenses, you can arrive at your expected profit. Identifying realistic KPIs is the most important thing to creating a forecast that you can actually achieve.
Work With Existing Income and Expenses
Growing your business won’t come without a few risks, and while it’s good to have ambitious goals, it may be far more realistic – and potentially not as expensive – to err on the side of caution and work around existing numbers instead of hoping to use what you may get in the future.
This means creating a budget that works around existing revenues and expenses so that your business doesn’t end up hemorrhaging money in an unexpected scenario. Since you already know how much money you have to work with, you and your team can find the best use of it by hiring the right people and spending on the right resources. If you spend more than you have hoping to earn it back in the future, your business will be left devastated if it does not work out the way you hoped it would.
Study the Business’s Runway and Burn Rate
The runway is an indication of how long the company has before it runs out of money and the burn rate tells you how quickly your company business is spending that money. These are two things that are very important when it comes to making future business plans.
As a business owner, you need to find a middle ground between the two. You want to scale your business at a speedy rate, but you also want to make sure you don’t run out of money. This is why it is so crucial to know your runway and burn rate – especially when you are planning big things for the future.
For instance, if you know your company has only about two quarters’ worth of cash before it runs out, now would not be the time to do things like launch new products because you may not even get there in the end. Your company’s time would be better spent securing funding from investors so you can keep serving your customers and reach a point where it is the right time for that launch.
However, in this scenario, we are assuming that there is no cash injection during this period. That may not always be the case; so, it’s not always a bad idea to have higher levels of burn or a shorter runway. For instance, that could likely happen right after a product launch or a massive investment. It all depends on your business, its unique circumstances, and how you plan to overcome short-term shortcomings. A good rule of thumb is to have a runway of typically 12-18 months so you can ride any waves that may be coming your way.
Consider Future Changes
A year is a long time, especially in the lifetime of a business, so there is no way to definitively predict what is going to happen. However, it is your job as a business owner to try your best to create a list of future changes that your business can expect.
There are so many factors that one cannot control, so start with what you can. Consider all your plans for the business in the coming year, whether it be a list of initiatives you wish to roll out, hoping to bring more employees on board, opening up new locations, or launching a new product. These are all actions that will have a major impact on your budget, therefore they must be accounted for from the get-go.
At the same time, you shouldn’t just be focusing on how much money you think the business will spend in the upcoming year. You should also consider new ways to bring money into the business, such as raising capital of getting a loan. Having more cash on hand will help you achieve any of the objectives mentioned above. This way, you can allocate the right amount to different aspects of your business plan instead of having it lie around idly.