Today I talk about Annual Planning.

But, before we do, I wanted to announce that enrollment has opened for my latest business finance cohort, Beyond the Numbers.

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7 steps to make 2023 your best year ever

It’s that time of year again… when you load your credit cards up with presents and then eat your sorrows away… o, wait… sorry.

It’s that time of year again… time to start planning for the year.

December, a time already busy with holidays, also seems to be a time busy with meeting your year-end goals and planning for the new year.

O, that’s not you? Well, at least it’s festive… right?

No matter how many times you’ve been around the sun, it seems annual planning and budgeting sneak up on you.

So, why do you need a plan?

Of businesses that survived 5 years, 70% followed a business plan. I’d say that’s reason enough, but a few more would be:

• Better manage your debt

• Makes you more efficient

• Helps you plan for slow times

• Forces you to look into the future

• Sets a goal, which you can then measure against

• Forces you to “get granular,” uncovering expenses and mistakes you otherwise could have missed

But for many, starting this process is intimidating.

As someone who has done this in many businesses, here is the process I follow:

1. Reflect on the past year

2. Estimate revenues

3. Set your goals

4. Create a budget

5. Project Cash Flow

6. Make adjustments

7. Communicate your direction

Let’s dig in.

Reflect on the past year

Without reflection, it’s easy to miss the big wins and losses from the last year.

Reflection is especially valuable when you set goals and can review your results against them.

Don’t make this too complicated, but be intentional about listing wins, losses, and lessons from the prior year.

I like to pull out my calendar and financial statement and take a look.

This walkthrough “memory lane” can help you apply what you’ve learned, good or bad.

Estimate revenues for the next year

I like to do this early in the process. Your revenue will be based on a number of factors.

1. What is the trend?

2. What is the economy?

3. What contracts do you have?

4. What is changing in your business?

You will come back and adjust this number as you make changes in later steps, but this will get you started.

Set your goals

Goals help align your team and create excitement.

They should be attainable but hard. I like to use the SMART Goal Framework.

Choose goals that will drive the business forward.

Creating an operations manual won’t qualify unless you can directly tie it to more revenues.

These need to be:

• New initiatives

• Growth targets

• Talent targets

Create a budget

Budgets are the worst. I totally get it, I hate them too.

But budgets act as a compass.

So, how do you create one? Here is the process I use:

1. Figure your fixed cost. These are the costs that you have even if your business cratered. Core staff, building, taxes, insurance, and contracts you can’t get out of.

2. Estimate your variable costs. These are the costs that change with the scale of your business. Examples would be production salaries, cost of goods sold, and other expenses that go up and down with volume.

3. Plug one-time/capital expenditures. Every business has one-time or capital expenditures, but the type of business determines how big and frequent these are. Think about the lifecycle of your business (in years) and when things need to be replaced. Then work this into your budget.

4. Create a contingency fund. Contingency is there to protect against unforeseen expenses. It’s impossible to catch everything, so this assures that one mistake doesn’t result in you losing money. 5-10% of expenses is pretty standard, but look at the company history and see how big the swings in expenses are. Have more or less of a contingency based on these swings.

These 4 categories should create a good baseline for your budget.

Don’t rush this process, as a good budget can become a foundation of your business.

Project Cash Flow

Most businesses have some seasonality to them, so you need to use your budget and revenue projections to figure out your “low” spots.

By doing this, you make sure you keep enough cash on hand when times are lean.

The worst thing you can do is make less-than-ideal decisions because of a predictable lull.

This also helps you plan when you make your capital purchases if they require cash outlays.

Is June hard? Wait until after June has passed to make that purchase.

Make adjustments to projections, goals, and budget

Now that you’ve set the foundation, it’s time to reflect on each of these elements as a whole.

You want to view them in light of all the new information you’ve gathered through this process.

Just like I said you shouldn’t rush the budget… you shouldn’t rush this step either. Go through things with a fine-tooth comb. Make sure you ask any questions you have. Turn over previously unexamined assumptions.

By taking this step seriously, you remove doubt from the next 365 days. No, I don’t mean all doubt, silly. I mean doubt related to bad numbers data.

As you do this review, think about:

1. Profitability goals

2. Increasing areas with uncertainty

3. New initiatives that require spending

After you make your adjustments and feel good about your numbers, dig into your cash flow model and figure out how you’ll redeploy the new cash flows.

Setting this intention before the year allows you to operate more freely during the year.

Communicate your direction

Too often leaders keep these decisions to themselves.

SHARE! By sharing, you allow your team to:

• Buy into the vision

• Get excited with you

• Join you in the goals

Be thoughtful about how you do this, but don’t be withholding. People can sense when they don’t get the whole story.

Wrapping up

I stayed pretty shallow on these to keep it short, so please reply and let me know where you’d like me to go deeper!

I’m sure I’ll deep dive into one (or more) of these in the next few weeks.

Something Interesting

• Sieva talked about healthy conflict in his latest newsletter and I thought it was worth the read. He references Ben Horowitz & Marc Andreesen, John D. Rockefeller, and Warren Buffett & Charlie Munger as examples of partners who were good at conflict. If they’re good at it… I need to get good at it. Read his strategies (and subscribe) on conflict here.

• Coindesk has a great breakdown of the ongoing FTX saga and lays out the case for it being a crime, not “an accident.” Great read and summary of the situation. Read the article here.

• SELF-PROMOTION TIME: I’m running a Twitter audience-building cohort with 2 of my friends, Clint Murphy & Steve Adcock. Enrollment opens next week and the first 25 who sign up get a 25% discount. Over 350 have joined the waitlist, so join the waitlist and act fast on Monday!

Interested in learning more? Here are 3 ways I can help:

1. Purchase the Financial Statements Decoded eBook.

2. ENROLL NOW for my cohort Beyond the Numbers. Enrollment closes Jan 8th!

3. Work with me 1-on-1 to optimize your financials and create a financial dashboard that will increase profit (booked through February 2023).

As always, reply to this email if you have questions, feedback, or opportunities to partner. I love chatting with everyone!

See you next week,

-Kurtis