Four Steps to Organize Your Finances For the New Year


As the new year begins, projecting where your business is heading in terms of revenue and expenses is critical. In the midst of higher costs, continued supply chain challenges and rising interest rates, understanding your business’s current financial state is key to a successful year.

From measuring your performance and profits, to restructuring your budget, there are many strategies and resources you can leverage to get your business on track to achieve your annual goals.

1. Calculate performance metrics to set annual goals

A simple way to check business performance is to calculate your gross and operating margins. Identifying your gross margin will reveal how effectively your business is converting your product or service into revenue. Your operating margin will show how successfully your business is converting sales dollars into profit dollars after expenses have been accounted for.

These numbers can be found by using simple formulas:

  • Gross margin: Gross profit ÷ Total sales
  • Operating margin: Operating profit ÷ Total sales

Once you’ve calculated these numbers, you can evaluate any areas needing improvement based on industry standards. Monitor these numbers frequently to guide your business’s growth and check your progress toward your annual goals.

Another way to track business growth is to build a financial performance dashboard. Dashboards provide current metrics and ratios in the form of graphs and charts, that can help you better visualize and understand your business’s financial data. From color-coded financial health gauges to column graphs that track revenue goals, these visual tools can guide you when making business decisions by tracking important key performance indicators to improve overall efficiency.

2. Plan for expenses

Managing cash flow — whether your revenue is consistent or intermittent — is key to planning and following an annual budget. When mapping out your expenses, there are several strategies to consider that can help you maintain a positive income flow.

Avoid paying all of your bills at the same time, and instead spread out your expenses as much as you can to avoid running out of funds. Prioritizing your expenses can give you an idea of what bills can be pushed back or rescheduled in order to stagger payments. Another opportunity for spreading out payments is to consult your suppliers. When possible, work with suppliers who are flexible and willing to provide a payment plan that syncs with your cash flow needs.

Take a conservative approach when budgeting for yearly expenses, identifying opportunities to cut back on expenses can give your business breathing room in the midst of higher prices, interest rates or any other unexpected circumstance. Start by evaluating your supply and production costs to make sure you are getting sufficient return on your investments.

3. Double check your balance sheet before tax season

To avoid missing out on critical deductions or income on your tax return, be sure your financial statements are well documented. Receipts, bank statements, invoices and all other transactional evidence should be sorted and readily available. Partnering with an accountant during tax season to help you clean up your finances is a good idea, especially if you’re noticing errors in your balance sheet.

As the new calendar year begins, this is also an ideal time to implement improved documentation processes so you are organized moving forward. Spending a little time making sure your team is aligned on these processes will make financial planning and applications easier when the need arises.

Important balance sheet items to double check include:

  • Variances in your cash or credit card balances
  • Abnormal business expenditures
  • Incorrect asset values
  • Inventory that doesn’t match your accounting records
  • Monthly profits that don’t match your net earnings

An experienced accountant can help organize your balance sheet and review your statements for errors. Investing in a solid financial advisor can save you time and money in the long run.

4. Communicate regularly with your banker

Proactive check-ins with your banker are extremely beneficial and educational. There are many benefits to establishing a relationship with your banker prior to navigating a financial challenge.

Your banker can help you review your business returns and identify cash flow challenges or surplus within your current business plan — and determine the best strategic action.

Approaching your financial planning strategically with your banker can help determine your true cash position and how much capital your business needs to access.

Always be prepared to supply your banking partner with three years of detailed financial statements including business and personal tax returns. Most banks require this information when applying for a loan. Streamline the process by giving these to your banker in advance so they can act quickly when you’re in need of funds.

Understanding and organizing your finances can give you a clear vision of the future to help you achieve your annual goals. Taking these four steps to organize your finances, and leveraging a strong financial advisory team, can help keep your business on track for success in 2023 and beyond.