Eight Key Areas to Review to Make 2022 More Profitable and Successful

Our upper middle market experience in mergers and acquisitions, has allowed us to work with many great business owners who faced significant challenges . Most of the challenges could have been eliminated with early identification of emerging problems. We have identified key areas to carefully review at year end to ensure you have no hidden areas of troubles that could arise to plague your business in 2022 or in future years.  I will post one at a time for you to review and share with your network, if you feel it is helpful. 

Number 1 - Review Your Assumptions Driving Your Market, Industry, and 2022 Sales Forecast 

As 2021 draws to a close, it’s an ideal time to reflect on how your business performed within your industry niche. How did your business compare to your competition? Did you achieve your sales and profit forecast?  

By now you should have an initial view of your 2022 sales and profit forecasts. Your forecast is driven by key assumptions on how your industry niche will perform in 2022.  

For example, a business owner we know owns a business in a very competitive industry. For this owner, it’s important to know industry expectations, forecasts, and trends to position her business for maximum success in 2022. 

What are the key assumptions and factors driving your market and sales forecast? What key economic assumptions are you using?  

It is crucial that you have all the best and most accurate information to ensure your expectations for 2022 and beyond are realistic.

 

Number 2 - Carefully Review Your Last Twelve Months Financial Performance 

We have worked with business owners who have large profitable businesses with consistent positive cash flow who often do not take the time to critically look at their company’s overall financial performance. It turned out to be a mistake when they wanted to sell. 

Where do you start? Begin with sales from period to period: Month over Month; Quarter over Quarter, and Year over Year. Ask questions: Are sales increasing? Why are they increasing or decreasing? Is it due to sales volume increases or just pricing increases?  

After you have a good understanding of your sales performance, next look at your profit or income.  You should look at gross profit, operating profit, and net profit. 

Of these three, you should look carefully at your gross profit margin. It tells how much you’re making from every sale after the costs to produce your products or services. Look carefully at your input costs. Calculate your gross profit margin as a percent of your net sales.  

Next, review your operating profit margin. This will show the actual profit your business makes after paying the variable costs of production, such as wages, raw materials, etc. When you calculate this ratio as a percentage of your net sales, it shows how efficient you are in controlling the costs and expenses associated with your business operations.  It is the pretax profits of your business. 

The more positive the financial performance, the higher the value of your business.

Number 3:  Create a Financial Forecast for Next Year or Longer 

Developing a yearly (or two years) financial forecast can be invaluable. This simply requires approximating or predicting how your business will perform in the future. We suggest that you at least complete a forecasted income statement. 

However, when we help business owners with a forecast, we use a three- or four-year forecast period. We help them develop six financial statements. These are the income statement, balance sheet, statement of cash flows, depreciation schedule, debt schedule, and net working capital schedule. 

Your financial forecast will help you identify trends in your historical data and it will help you identify future financing requirements for your company. If you are forecasting strong growth, your financial forecast will help you more accurately identify the future cash flow requirements to support your sales growth. There are many benefits of knowing the future financial status of the company. 

The more time spent on developing an accurate forecast, the easier it will be to manage your business.

Number 4 – Complete an Annual Review with Your Customers 

A number of years ago we worked with a business owner who was having trouble keeping customers and increasing sales. We developed a detailed questionnaire his sales team reviewed with each large client. We termed this The Annual Review. We suggested that someone other than the regular primary salesperson conduct this review to encourage the customer to be more candid in case they had issues with their current regular sales contact. 

This discussion and review with the key clients provided valuable insight into what the company was doing right and where they could improve. It helped make the company more responsive to the customers current needs. It also revealed areas where they were falling short and identified new ways to help their clients. 

This business owner found their clients response to be very positive. He stopped losing customers and his sales increased faster. The annual review provided valuable intelligence, new insight, and generated ways to improve customer service.

Number 5 – Review the Strength and Depth of Your Management Team 

One of your company’s best strengths should be your key management team. Although excellent management talent is often an intangible and hard to quantify, successful companies are those that have continually recruited, trained, and retained a great management team.  

Many successful owners conduct annual performance reviews. If you are one of them, explore with your team of key managers what they can do to improve the way your company functions. It’s a great time to find out if they are passionate about working for you and how they see their role in the long and short term.  

It’s important that you have the best and right people in your key management positions. If you have your key positions with the right people you will have great success. 

Are you pleased with your management team? Do you need to make changes?

 

Number 6 – Evaluate Your Advertising, Marketing, and Sales Strategy and Plan 

Most business owners know they need an effective advertising, marketing, and sales effort to be successful. Scrutinize your company's results. Develop a critical review of the following: return on investment, market share, new sales generation statistics, customer opinions, changes in sales, etc. 

Reviewing your sales and marketing methods takes some effort, but it can provide valuable management information. What worked best? What was the highlight of the year? What brought you to that success? Can you replicate it? Can you quantify your return on your investment? Have you tracked your spending to determine what was effective? Year end is a great time to make adjustments to your advertising and sales spending amounts.  

If something worked well, you may want to invest more in that area. Also, look at what your competition is doing.

Number 7 – Review Your Policies and Operating Procedures 

It’s crucial to understand what’s working great and what needs overhauling. Look carefully to find where problems could lie. Identify solutions to these problems. This review can be very enlightening, as it may reveal your organization has descended into bad practices that impede your success. 

Review all your supporting services to determine if they are meeting your current and long-term operating

Number 8 –  Review All Your Vendors  

It’s worth the time and effort at the end of each year to review all your key vendors. Review how much business you're doing with each one. Are your price and terms favorable? What is your working relationship with them? Is your relationship mutually beneficial? If you're satisfied with your vendors, let them know and work to create a better relationship with them. Often it will surprise them to learn their customer has an interest in them.  

During this process and discussion, you can explore establishing performance indicators for each vendor and develop even more effective evaluation processes and procedures to review and rate your vendors. 

It is our hope that 2021 has been a very good and successful year for you and your business