As the end of the quarter draws closer, chances are your budget is getting plenty of scrutiny. While assessing revenue and expenses, some small businesses may be in for a rotten dose of reality if they didn't meet their yearly projections.
If you fall into that camp, take a deep breath. Everyone misses the mark sometimes. But instead of hitting the eggnog hard, let's look at ways your business can use this rude news as a learning experience. We asked some financial experts and a small-business owner to share their advice on how to turn the ship around.
Get to the Bottom of the Problem
Joseph Camberato (@NatBusCap), president of business financing company National Business Capital, suggests investigating why you're missing your numbers before you make any tough calls. The idea is to treat the ailment, not the symptom.
Camberato offers an example. "If you have to cut servers in your restaurant, the core issue could be there is not enough foot traffic coming in or customers are having trouble making reservations on your website."
Sometimes, it can be hard to analyze these things on your own, so reach out for help. Camberato recommends finding a mentor who can give you some perspective. "Networking events, industry organizations, and chamber of commerce events are all great opportunities to find a business mentor," he offers.
Don't forget – working with an accountant can be a big help, too. A CPA can help you create financial forecasts that chart your cash flow, establishment costs, expenses, and sales. That insight can help you estimate your expenses and track your numbers throughout the year.
Once you know where your business needs to focus its efforts, you can make new goals and plans to reach them. Camberato suggests reviewing your goals on monthly and quarterly basis to see if you are on track or not. "Monitor all this throughout the year instead of waiting until the year's end to realize you didn't do what you wanted," he says.
Reevaluate Your Market
Heather Niziolek (@Goosie_Girl), owner of fashion label Goosie Girl Boutique, hit an unexpected roadblock several years ago. She'd been making little girl's tutus for the last 12 years, but thanks to the DIY craft movement and cheap imported goods, the market today is flooded with them. Whereas she used to sell her handmade tutus for $25 to $40 easy, she was suddenly struggling to get even $15 for her high-quality designs.
So Niziolek had more tutus than she could ever move and she was at a crossroads: keep eating the losses or adapt? Fortunately, she chose the latter.
"If I have a surplus of one product sitting around, I go back and analyze: were the products released at a bad time (economy-wise or season-wise)? Were they over-priced? Were the colors or styles not trending?" Niziolek says.
She then corrects course. In some cases, that means making up for those losses by doing a wholesale blowout, inventory sale, or another special promotion. With the tutus, that meant not selling them anymore – the market's demand no longer offset the cost of making them.
That can be a hard truth for many business owners, but it's one to remember. Markets change, and you have to adapt to those changes, whether that means altering your current offerings or branching out.
Look for the Silver Lining
Chris Bushong, a San Diego-based tax and business-planning attorney at Paretis Law, reminds small-business owners that it's not all doom and gloom if they miss their mark this year. If nothing else, you at least have the advantage of a lower tax burden going into the new year. Bushong notes the first chunk of income you earn in 2016 will be tax-free, more or less, if your business is in a no-profit position.
While other businesses are scrambling to make big expense write offs before the close of the year, you are better off holding onto your cash. Bushong suggests, "Wait until the new year to purchase equipment, make charitable donations, etc. The cost of supplies and assets may decrease after the holidays, thus giving businesses more bang for their buck."
To learn more about small business tax concerns, check out our post "5 Common Small-Business Misconceptions about Taxes." And if you think this post can help a business friend out, send it along.