So many businesses fail in less than a year so if you’ve made it that far, you’re already doing well. It means that you’ve started bringing in some revenue and you’re in a strong position to start moving forward.
But it’s important to remember that the failure rates for businesses increase after the first year, so making it this far doesn’t guarantee success. That’s why now is an important time to take stock of your business so you can decide how best to move forward and build on your success.
A lot of business owners get so caught up with the day to day running of the business during the first year that they miss the bigger picture and that’s when they start running into trouble.
If your business is going to continue to thrive, you need to make sure that you’re managing your finances properly and making sensible financial plans for the future. If you’re coming to the end of your first year as a business owner, follow this financial checklist to make sure that you’re in a good position moving forward.
1] File An Annual Report
In a lot of states, businesses are required to file an annual report on their finances. In some cases, failure to do that might mean that your business is closed down, so it’s essential that you do this.
There are different rules about annual reports depending on where your business operates so it’s important that you find out when to file an annual report ahead of time. You might end up in trouble if you suddenly realize that the deadline is imminent and you haven’t started putting together the report yet.
The annual report needs to show quite a lot about your business so it might take you a while to put it together. You need to give details of the management structure of the company, The names and details of the senior members of staff, a breakdown of your business activities, and details about the shares in your business and your financial activity.
It’s best to start keeping a good record of everything and compiling the report as you go along so you’re not rushing to get it all done by the deadline.
2] Review Your Business Plan
Hopefully, you came up with a good business plan when you first started out. It should have outlined how you plan to get your first customers, when you plan to start hiring more employees, and how you aim to grow the business. If things are going well, you should have reached those milestones. But now that you’ve made it through your first year, it’s time to review that business plan and possibly write a new one.
The second year of business is going to bring a whole host of new challenges with it and you need to be prepared for them. It might be time to start releasing new products or move into a larger premises so you can expand your operation to meet increasing demand.
Those plans for expansion will require more investment, new marketing campaigns, and changes to your manufacturing and shipping operations. You’re never going to pull all of that off without a solid business plan.
3] Work Out Your Break Even Point
The break even point is the point at which revenue matches your overheads. You won’t be making a profit yet but you aren’t losing money either.
This is an important turning point for businesses because, once you can sustain yourself financially, you can start looking at expansion options. It’s so important that you work out your break even point as you head into your second year of business so you don’t get ahead of yourself and start making poor financial decisions.
It’s only natural that you’ll be excited about the success that you’ve had so far, but you need to stay grounded. If you decide that you’ve made it past the first year and there’s no stopping you, so you put a plan for rapid expansion into action before you manage to break even, you’re likely to fail. All of that extra spending will increase your overheads and you’ll run out of money.
What you should be doing instead is thinking about your break even point and deciding whether you need to cut costs or perhaps raise prices to meet it. Even then, you shouldn’t be thinking about expansion, you need to wait until you’re actually profitable before you can start to grow the business.
When you’re trying to work out your break even point, it’s important that you consider your variable costs as well as your fixed costs. Fixed costs are things that remain the same regardless of sales volume, like rent or salaries, for example.
Variable costs change depending on sales, the cost of raw materials and manufacturing, for example. If you forget to account for the variable costs, you might make mistakes when calculating your break even point and that can cause you problems.
4] Set New Sales Goals
It’s important to set sales goals when you first start a business but they’re not always going to be accurate because you don’t have a huge amount of data to work with. You should have been doing market research so you can get an idea of how the product is likely to be received, but things might work out differently once you launch the business.
For example, your product might connect with certain demographics that you hadn’t considered, but not be as successful in the markets that you were focused on.
Now that you’ve got a year’s worth of sales under your belt, you should have a much better understanding of the market. You know who’s buying your products and what kind of volume and sales increase you can expect to see. That’s why now is a good time to review those sales goals and come up with new ones.
If you do these things when you’re coming to the end of your first year in business, you can come up with a solid plan for the future and make sure that you can continue to build on the success that you’ve had so far.