In a matter of hours, the new year will arrive. Are you prepared?
Preparation for the new year involves mundane tasks like getting your “books” (accounts receivable and payable) ready for the new fiscal year and esoteric tasks, such as analyzing the past year’s business and trying to predict (and prepare for) the trends of the new year.
Getting my fiscal books in order is pretty easy. I use QuickBooks Pro because of all the analytical tools it offers. Using QuickBooks means that I have nothing to do to prepare for the new year, at least as far as that program is concerned. An advantage to QuickBooks is that it is easy to compare time periods. Knowing how the ending fiscal year stacked up against the prior year gives me an idea of how accurate my predictions for the now-ending year were and how successful my efforts at self-promotion were.
I also use Excel. I have found Excel to be the best (for me) method of tracking project information that QuickBooks doesn’t in the absence of expensive customization, such as the number of hours a project took and the pages-per-hour rate. (QuickBooks will let me input the information, but there isn’t a built-in analytical tool that will make use of the information or make it readily accessible.) For me, this information is very valuable because it allows me to track my actual performance against my required Effective Hourly Rate (EHR) and my desired EHR.
Excel also lets me see at a glance the projects and the rates I have received from clients. Because Excel is intended for customization, I have been able to create data sheets that provide me with valuable business information. And because I created a master version of the forms, it is easy to set up the spreadsheets for the new year.
Those are the mundane tasks; they require little creativity or speculation to set up each year. Most of my time, however, is devoted to the esoteric tasks — trying to determine trends for the upcoming year and how I can improve my business.
The esoteric begins with an analysis of the closing year. For example, was my business up or down or neutral? Did I generate, more, less, or the same revenue as the prior fiscal year from more, fewer, or the same number of projects as the prior year? The answer to this latter question is particularly important in my year-ending analysis. What I do not want to discover is that I generated the same income but from more projects; what I do want to discover is that I generated more income from fewer projects.
I also want to know whether clients have changed over the year. I also want to know if the types of projects changed. And I want to know whether any (and how many) projects were unique and unlikely to be replicated in the new year. By this, I do not mean subject matter or title; rather, I mean, for example, was a project’s size unique and not likely to be replicated or were a larger number of projects on shorter schedules, which results in a higher fee, than usual.
With your sharp editorial eye, you will have noticed that I am a great believer in data and the data-driven business, and the planning that the data lets me do. Planning is important for lots of reasons, not least of which are taxes and investment. I have learned over my now 31 years in the business that I can fairly closely predict what my business will be like in the new year if I follow a plan. I have also learned the importance of creating a plan for the new year.
When I analyze the data of the ending fiscal year and the data of past years, I can see what steps I took that brought me new and “improved” business and what steps did nothing and what steps cost me time, money, and effort for no reward and perhaps even a loss. No plan is perfect and no plan is guaranteed to succeed, but having a plan is like having a compass in the woods.
Consider just one element: advertising. At the end of the fiscal year I carefully analyze what I spent advertising, how I spent it, and on whom I spent it. I compare that information to the same information from past years. What I learn is that dollars spent on method x generated little to no business, whereas dollars spent on y generated a significant increase in business. But I also learn whether the dollar amount spent on y is excessive for the amount of business generated — it makes little sense in my business plan to spend $1,000 to generate $1,200 worth of business: the ratio is wrong. However, it does make sense to spend $250 to generate $1,200 in business: the ratio is right.
And because I track my time carefully, I can also discover whether the time required by a particular advertising campaign is worth spending: sometimes one is better off spending the time “regenerating” oneself by reading a book than spending it on promotion efforts that bring little reward.
This analysis is particularly important when much of the “advertising” that is done to day amounts to participation on social media. Does the time spent on LinkedIn, for example, bring in sufficient business to justify the spending of the time? A common mistake that is made in making such a determination is not assigning the time spent a dollar equivalent; that is, each hour spent on social media should be “charged” at least at your required EHR (and better yet, at your desired EHR). If you spent 100 hours on social media in 2014 and your required EHR is $50, then the time should be valued at $5,000. If, as a result of your spent time you brought in $2,000 in revenue you would not otherwise have had, then social media is a losing proposition. (The value of social media is not just in new revenue, and those other values should be factored in if important to you. For some people, those other factors are more important than revenue; for others, only revenue matters.)
However, as part of that analysis, you also need to analyze the $2,000 in revenue. Was the work you did to earn that amount at, above, or below your required EHR?
The point is that with the change of years, it is time to prepare for the new year and make a plan to tackle the challenges you can expect. If your business was not where you wanted it to be in the ending fiscal year, then it is time to set it on the correct course. Analyzing the ending fiscal year and past fiscal years is the start, but it is not the end. You also need to try to analyze and predict industry trends. (See Are Boom Times Coming? for an example of trying to trend spot.) If you can identify a trend for your niche, you can try to exploit it in the upcoming year.
Get prepared for the new year now!
Richard Adin, An American Editor