Welcome to 2015! Through my [most joyous] experience working with creative small business owners via SLP Creative, common questions often arise. In 99% of cases my clients are brilliant creative visionaries or entrepreneurs…but don’t always have a full arsenal of business management tools or know-how. A timely example of these questions is: how do I forecast/ predict how much money I’ll make this year? The case is often that this question is responded to as a creative conundrum: my clients will go with their instinct, and base forecasting on what they’d like to make, or what they think their product service is worth. While optimism is an important part of sustaining a business, facts and metrics are typically what help us build a stable enterprise. So grab your Quickbooks or Excel spreadsheets and use the tips below to answer the question: How Much Money Will I Make This Year?
- Sort last year’s revenue by client – Create an actual list – not a mnemonic list – of where 2014’s revenue came from by client or source. You can do this pretty easily via Quickbooks, or in an invoice log. Tally each client/ source of revenue, and then rank them in order of descending contribution. Once this is done, pause, ask yourself the following questions: Do each of these specific clients or sources have the same potential for spending this year as they did last year? Will they all remain active – or are some due to drop off due to the completion of a contract or project? If your client-base decreases this year, how will you make up your revenue? What can you do to replace or supplement that loss? If its increases, evaluate by how much & for what duration of the year?
- Sort last year’s revenue by month – Create an actual list (as noted above) that tracks how much you made each month. Use this – plus a safe percentage, if possible, anywhere between 5-15% depending on the scale of your business and the overhead – to establish monthly goals. Once this is done, here are a new set of questions: Is my business seasonal? If so, what are the busiest months of the year? How can I capitalize on the busy periods to drive more revenue? What might be done to increase revenue during slow months? Can I trim expenses at all during slow months in order to improve cash flow?
- Sort last year’s revenue by service or product –Now that you’ve got the sorting thing down, create a new report that tracks income type. Ask yourself: are some of my services or products more popular than others? Does my revenue come from the number of transactions completed or by the dollar volume per transaction? Are there new products or services I can reasonably introduce to stimulate revenue – and if so, how much will it cost to do so? Did I lose any key staff over 2014 that may contribute to loss in either product or service offerings? Is there enough demand so that I can increase my rates or prices for 2015?
- Altogether now… After completing the above, use your 2014 tallies to get a clear idea of your revenue goal by client, month, and product/ service. In excel, create a simple spreadsheet that places all of 2014’s data next to your goals for 2015. Be mindful of where your money is coming from, when it is most likely to hit, and what part of what you do drives it most. Set reasonable goals for growth…most businesses will not double annually, particularly if they are more than 3 years old. Think about how you can you create a sustainable growth pattern for your business. Also remember: these exercises are used to set goals for growth or stability in revenue – overhead is not taken into account here. To understand the full value and health of your business, overhead & costs are a vital component.
The focus here is on understanding how you make money so that you may motivate yourself to create concrete – but executable – goals.