Financial Resolutions for 2011
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No matter how healthy your business is, chances are good that there are some financial issues you could have managed better in the past year. So when you start anew and set New Year's resolutions, make sure to include some that relate to your financial future. Here are a five to consider for 2011 based on suggestions from Phil Leibowitz, a partner of San Francisco accounting firm Burr Pilger & Mayer, whose clients includes entrepreneurs.
No. 1: Set personal financial goals.
If you're a 30-year-old who is just starting out in business, your personal goals and a timeline are likely to be different from those of a 60-year-old who may be eyeing retirement. And these plans may have an impact on the decisions you'll be making for your business in the coming year. So it's worth taking time to consider where you want to be personally in three to five years -- and discuss what that means for your company with your tax professional.
"I would have the 30-year-old think about his risk orientation and talk with him about how much money he wants to invest in his company and leave there for future growth," says Leibowitz. "With the 60-year-old, I would be talking about succession planning and starting to diversify his money out of the business."
No. 2: Make a budget.
Only a fraction of entrepreneurs write a budget, according to Leibowitz. While business owners may think they can keep track of their company in their heads, he doesn't recommend it. "It's like driving at night without the lights on. You know there's a road there, but you don't know exactly where it goes."
The process of creating a budget is critical for planning a company's future, instead of just reacting to it. Leibowitz suggests starting with such questions as:
- Will you need extra cash at a certain part of the year?
- Will sales slow down or pick up seasonally in your industry? If so, will you need to cut costs or hire extra help?
- Will you need to increase your line of credit for some short-term need?
No. 3: Talk about the company's priorities with your team.
It's important to share your goals for the next year with employees, especially if your plans reflect shifting priorities. "Maybe your goal this year is to increase market share, and you're willing to give up some profits to do it," Leibowitz says. "If your employees don't know that, they might be price sensitive when making sales and lose business. So you want to make sure they're on the same page."
You also want to be clear about the role each employee will have in meeting business goals. Mapping out specific responsibilities can be especially helpful when evaluating employee performance for raises or bonuses.
"If you have five employees, this doesn't have to be formal. If you have 40 or 50 or 200 employees, you need a process," Leibowitz says.
No. 4: Lock in fixed costs.
Leibowitz expects that as the economy improves, your vendors, just like you, are likely to want to increase prices and cushion their margins. Therefore, he suggests staying one step ahead and negotiating terms now.
"With rent and other business specific fixed costs, you want to negotiate two-, three- or five-year agreements where you lock in the current price or agree to only inflationary increases," Leibowitz says.
No. 5: Revisit postponed expansion plans.
If you've put off plans because you couldn't secure capital, it might be time to revisit them in the coming year. Leibowitz expects the lending environment to improve in 2011, at least for businesses whose cash flow and balance sheet are in good shape.
"In 2008 and 2009, banks were reticent to do anything unless it was riskless to them," he says. "They would only lend to companies with ultra strong balance sheets." Now he's beginning to see companies that are profitable with merely solid -- not extraordinary --balance sheets qualify for loans.
"The cost of capital only goes up over time, so this is a good time to establish a good banking relationship, before that starts happening again," Leibowitz says.