Your small business has survived its first year. Congratulations! Two out of every ten new companies don’t make it that far, according to government data. And the failure rate gets worse over the next few years of a new venture. How can you beat the odds? There’s no magic formula but the one-year mark is a great time to take stock of your business and focus on the big picture in order to boost your chances of success. Most small business owners get caught up working in their businesses—making their products or providing their services—and neglect working ontheir businesses as an entity. That means planning, setting goals, networking, or focusing on a company’s financial health often fall to the bottom of the to-do list. So take your first business anniversary as a cue to invest a few hours in the steps listed below and your business will be much more likely to be around in another 12 months, ready to celebrate Year Two!
Revise your business plan (or write your first one!)
Your aim is to create a plan that actually helps you run your business. You want a plan you can easily refer to throughout the year when you want some guidance on decisions about potential new products, markets or investments, for example. A good business plan will help you stay focused on your business goals, and it doesn’t have to be long or complicated. Your focus should be on the action steps and deadlines needed to reach your goals. Keep descriptions of the company, products, or target markets short. You’ll also need a few paragraphs summing up any market research you have done and potential risks to the business, both short- and long-term. Even if you don’t plan to court investors or land a loan, your business plan should include estimates for sales, expenses, and profits for the next three to five years. There are lots of business plan templates online that can give you a general idea of what to include, but don’t get too caught up in trying to stick exactly to pre-made. Your goal is to create a plan to clarify and guide your specific business, whether that takes two pages or 20. Your priorities and knowledge will change substantially from year to year, so make sure to update it as your business grows.
Figure out your break-even point
The break-even point is where business revenue exactly covers costs. The business is not making a profit, but it’s not losing money either. Once you know your break-even point, you can make informed decisions, including how much you need to increase sales or prices and, if necessary, cut costs. You can more effectively price new products and services, and you can figure out sales needed to reach different profit targets. To calculate the break-even point, you need to know both your fixed and variable costs. You can figure those out for each product or service, and determine break-even for each, or average them together for a company-wide break-even figure. Fixed costs are those that stay the same no matter whether sales rise or fall or hit zero. Rent is a fixed cost. Salaries can be a fixed cost. Variable costs change depending on sales volume. The cost of raw materials is one example. You can use one of the online break-even calculators, including this one from Sure Payroll or you can do the math yourself with this formula from the U.S Small Business Administration: Break-even point = fixed costs/ (unit selling price – variable costs).
Set new sales goals
The end of your first year in business is a great time to set new sales goals. You now have 12 months of sales history and a better understanding of your market. Creating a detailed sales forecast for the coming year will give you a powerful tool to guide your business. You can compare goals with sales on an ongoing basis and make adjustments before losses pile up.
Start with monthly sales forecasts for each product or service you sell. If you have a lot of them, lump them into categories.
Use data from your first year to estimate sales for each month of the coming year.
Factor in expected sales from existing customers, new products, seasonal effects and other market-specific information.
Make new (business) friends
Join your industry’s trade association. Membership is an investment that can pay off whether you are starting out or have been around for several years. Your trade group can expose you to industry best practices and research through workshops, certification programs, and specialty publications. An industry association also keeps members posted on new regulations, and often hosts conferences where members can scope out the competition and meet potential business partners. Of course, networking is a core benefit. Joining a trade group also can raise your profile and boost your business’s reputation, from a simple listing in the member directory to national leadership opportunities. You could serve as a mentor or a media contact. Many trade associations also have awards programs where members can showcase their businesses.
Separate business money from your personal accounts
If you haven’t done it after a full year in business, don’t waste any more time. Set up a separate checking account for your business. Keeping separate business and personal accounts is an important way to prove you are running a business, not a hobby. The IRS cares about that when it comes to allowing business tax deductions, for example. And if you have set up as a limited liability company, or LLC, separate accounts can help protect personal assets in a legal dispute. A business credit card or debit card will make it much easier to keep business expenses separate and help with record-keeping. If you still need to supplement with personal funds, add them to your business checking account at regular intervals and account for it as owner’s equity.
Employee retention and recruiting
Take stock of the people that make up your company (including yourself) and your plans for how you’ll manage them in the year to come. A few recommended resources:
Take the time to untangle your finances now and you’ll improve the odds that your small business will make it to Year Two in great shape.
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Article ByCyndia Zwahlen
Cyndia Zwahlen, a former small-business columnist for the Los Angeles Times, is a freelance business writer and editor for media, academic and business clients. She founded the Small Biz Mix blog.