Avoid These Three Stumbling Blocks as You Plan for 2022

It’s hard to believe it’s almost Q4 and time to start planning for 2022! Even though it’s an annual event for every company, it often seems like an overwhelming task. To help make it feel more manageable, I’ve mapped out ways to smooth out the top three stumbling blocks businesses face when planning for the coming year.

Stumbling Block #1: I don’t know where to begin!

Not knowing where to start often comes from a lack of clarity. Busy entrepreneurs and business leaders I work with often find that their focus becomes fragmented. While attempting to attend to myriad aspects of the business, time and energy are spread thin, decisions are either not made or once made, not properly implemented. To help establish clarity a solid framework is invaluable, giving leaders a clear path and tangible action items that will create structure, provide the company with clear objectives, and get everyone moving in the same direction. Consider implementing the Entrepreneurial Operating SystemTM (EOS), coupled with the Vision/Traction OrganizerTM, detailed in Gino Wickman’s book, Traction – Get a Grip on Your Business. It’s a great way to level set your company’s mission and goals, which then dovetail to create the proper systems and actions needed to meet goals for growth and scalability. Read more about getting the right tools and systems in place to achieve both strategic and financial clarity, so you always know where you stand and where you should be headed.

Stumbling Block #2: I’m uncertain of my company’s year-to-date performance and where to find that information.

Your financial statements not only tell you where you are but help you track progress, identify deficiencies, make adjustments, and plan for growth.  To gain a solid foothold as you plan for 2022, learn to understand and interpret these primary financial reports.

  • The Income Statement illustrates revenue versus expenses during a specified time period. With this information you can calculate critical numbers like gross profit, operating income, and net income. Net income is, of course, a major indicator of your business’s profitability and financial health and can help analyze the bottom line.
  • The Balance Sheet shows where cash has been converted to other assets that are required to operate your business and provides you with a snapshot of your financial position at a specific moment in time. It should include a ratio analysis of the current month plus historic ratios. The Balance Sheet is a good test of whether your numbers actually add up and is a tool for calculating net worth.
  • The Statement of Cash Flow is a barometer of the company’s financial health and the most critical financial piece. Yet many companies don’t produce it. It illustrates how your business moves money around – where cash is coming in and where it’s being spent. It will reveal whether you are generating cash flow from operations – which is essential for staying in business. Managing finances and making informed business decisions are dependent on the information you receive from this critical tool.
  • Cash Flow Forecasting can protect you from being blindsided by unexpected swings in cash flow. This vital cash management tool is incredibly important as you chart your course forward.

Learn more about preparing and interpreting these critical financial tools for your business and how they can help you with ongoing planning.

Stumbling Block #3: I have no template for preparing a budget.

Every company needs a budget – but more accurately, you need a profit plan. Budgets, or profit plans, have traditionally been prepared for the accounting year. But that may not be realistic or yield an accurate plan since many factors that affect profit planning can change rapidly.

My solution is a rolling, 12-month, profit plan which means re-forecasting the next 12 months each quarter. This allows you the flexibility to incorporate changes as they occur, yet you always have a one-year plan. Here are the basic elements of creating and implementing a truly workable budget, or profit plan, for your company:

  • Always start with your sales forecast.0
  • Organize your profit plan electronically.
  • Know the Net Profit you want to achieve.
  • Understand your true cost of sales.
  • Categorize your operating expenses.
  • Review and revise your profit plan every 90 days.
  • Report actual results against the Profit Plan monthly and adjust to stay on track.

Learn more about the many nuances of preparing your 90-day, rolling Profit Plan and Cash Flow Forecast. They can be your most valuable tools for financial success as you plan for the year ahead.

Take steps now to position yourself to start next year right – and the next and the next – with a Financial Intelligence Framework that will provide you with a valid, 12-month, operating budget and forecasted cash flow. Standing on a solid financial foundation and working within a strong financial intelligence framework of timely and accurate financial information, you’ll have a plan for growth and confidence in your decision making.

I’d welcome the opportunity to help you create a Financial Intelligence Framework on which you can build for both the short- and long-term. Contact me for a complimentary consultation.

Written by

Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.