3 Crucial Financial Strategies You Left Out of Your Annual Business Plan
Financial strategies. Not exactly two words creative business owners love to hear.
Creating a yearly plan is usually a no-brainer for small business owners. We like to plan, dream, strategize, and try to set goals for the upcoming year. You probably have ended up with a pretty comprehensive strategy and action plan (especially if you went through the free My 2017 Plan FounderClass™ with us!).
As you grow your business, you start to think more like a CEO...like a founder. Part of that is taking a deeper look at your revenue and sales projections, instead of winging it on a hope and a prayer.
Understanding your numbers is simply a way of understanding how well your business is helping you reach your vision and goals.
I want to put this into perspective a little. I know that most of us here aren’t running giant corporations—maybe none of us are. But it’s worth thinking about the way corporations are structured for a moment.
The highest-paid executive within a corporation—after the CEO, or Chief Executive Officer—is the CFO, the person responsible for the financial health of the business. And you can bet that person, at the end of the day, is simply trying to make sure their business is helping them reach the company’s vision and goals.
I’ll say here that I was never going to be a math major, and I think as creatives some of you can relate to that. But business financials aren’t math—they are pieces of information combined in a way that shows you how your business is performing.
No matter where you are in your business, getting a handle on the financial side of things takes work, and it can feel hard.
As a creative business owner, it can be hard for us to think in details like this, and even harder since we don’t use the left side of our creative brains as often.
Financial forecasting is such a valuable tool for making sure you reach your vision and goals. Making sure that you’ve created your goals with 3 crucial strategies in mind will help you connect everything-your goals, revenue, and marketing activity.
Don’t leave these 3 crucial financial strategies out of your annual goals:
1st Strategy: If you have multiple revenue streams you want to grow in the future, focus on just one this year.
Instead of lumping all the money you make into one big category and calling it good, you should be separating out your revenue streams—which we define as any place money flows into your business. That way, you can get a good look at what each product or service brings in and how much it costs to put it out there—really good information to have.
Start by thinking about all the different markets you sell to. For example, let’s say you’re a web designer. You specialize in custom branding and website design for a limited number of clients, but you have also created some website and branding templates that can be purchased directly from you at a much lower price. That means you have two markets—custom and retail—and each represents at least one revenue stream. If you also created a workshop teaching people how to design their own branding and website, that's a third market—and a third revenue stream.
That example may make the differences sound obvious, so let’s look at another example. Let’s say you design notepads for busy moms. You sell them directly from your store, but you also sell them to other stores for resale. It’s the same product, but there are two different markets being sold to—retail and wholesale. If you decided to license the product to business coaches who work with busy moms, to allow them to use the ideas and designs you created but brand them to use as gifts for their coaching clients, that would be a third market—licensing.
These are your revenue streams. Figuring them out will look different for everyone; it’s less about following a set of rules and more about figuring out what works for your business. The point here is to track each revenue stream so you can tell how each is working within your business.
So as an example, within the retail market, you may have revenue streams like your Etsy shop, your website shop, and in-person events (like markets or fairs). Or you may find you that you think of your wholesale revenue as being two different revenue streams if your wholesale efforts focus on two fairly different sets of products. Or within the instruction market, you may do individual coaching, which would be one revenue stream, and then offer a series of online workshops that you consider to be a second revenue stream.
If you’re focused on making changes to multiple revenue streams, you could not only spread yourself too thin, but also cannibalizing your own efforts by marketing too many things at once instead of being laser focused.
2nd Strategy: If your goal is to increase what you can pay yourself, make sure you’re hyper focused on what are your most profitable products or services.
Understanding the difference between your revenue (the total amount of money you make) and your profit (what’s left over after all expenses are paid) is crucial. If you’re bringing in a ton of revenue but spend nearly as much money doing so, your profit won’t be very high—and I’m guessing that’s not what you want.
Before you settle on your yearly goals, you should understand which of your products and services are your most profitable and make sure you know if your goal is feasible or not.
Let’s use an example of a stationery designer: She sells wedding invitations and has a wholesale greeting card line. Our stationery designer’s goal is to be able to pay herself (what she can put in her personal checking account - net profit, pre tax) $100,000 next year and increased sales for her wholesale greeting card line.
She sells a good amount of greeting cards but her profit is only around 30%. She has always done really well with her wedding invitation line, which has a profit margin of around 70%. If she wants to increase her salary, she shouldn’t be focusing on her greeting card line.
If you’re focused on increasing your revenue but you’re using products that aren’t your highest profit margins to do it, you’re wasting your time.
3rd Strategy: If you want to reach a certain revenue goal this year, make sure that your sales goals are reasonable.
If you have been in business for a while, you probably have a good idea of what you can sell next year, which should be an attainable stretch. For example, if you sold 100 t-shirts on Etsy last year, you can probably sell the same number this year, but when you set a goal for the next year, try pushing yourself to bump it up a bit—maybe to 125 t-shirts.
If you haven’t sold anything at all and are just starting, or you’re introducing something new, this may be tough. I just want you to be reasonable and set yourself up for success.
Think about your sales goals for each product and what you think you can sell. When you do this for each product, make sure that it lines up with the goals you’ve made. For example, if you want to increase your sales, set sales goals for each of your products or services and give it a reasonable bump to make it a stretch to motivate you to achieve the goal. Then, when you add up the potential of reaching those goals, does it match up to the total revenue you want to bring in or what you want to pay yourself?
Back to profit margins, what is the profit you’re making off of each of these items? The point here is that the number of sales you make and even revenue you bring in isn’t an indicator of profit, and if you’re equating the two, you may not really understand how your business is working.
Don’t base your yearly revenue goal, or what you want to be able to pay yourself on gross sales, a number of products, or numbers that are unattainable. You’ll set yourself up for failure.
You may have noticed that your marketing efforts support your revenue, and your revenue supports your goals. Now, you’re thinking like a founder!
Everything should be streamlined so you know exactly how to choose which ideas and tasks need to happen, and your productivity will sky rocket.
Thinking strategically like this is what separates hobbyists from business owners and business owners from founders. You’ll see a difference in your productivity levels, your revenue and cash flow, your marketing success, and your confidence.
You’ll be running your creative business from a place of clarity and reality versus guessing and winging it.