Year-End Financial Management Planning Tips

What to Do in Q4 to Build Momentum for the New Year Through Solid Year-End Planning

October kicks off the fourth quarter for companies operating on a traditional calendar year. For business owners committed to achieving their goals and building momentum into the new year, the final three months is the time to engage in serious year-end financial management and planning.

Now is the time to challenge yourself to make the most of the three remaining months of the year. This article presents five important year-end financial planning activities you should do to set your company up for success in 2022.

Year-End Financial Planning Task #1: Assess Performance

You started the new year with a list of goals – and if you prepared properly, with a strategic financial plan to achieve those goals.

The very first thing you should do as you start your year-end financial planning is to evaluate how your company’s year-to-date (YTD) performance stacks up with what you had envisioned and planned.

Calculate the following YTD numbers:

  • Revenue
  • Gross Profit Percentage (GPP), which is gross profit expressed as a percentage of revenue
  • Net Profit Percentage (NPP), which is net profit expressed as a percentage of revenue

Tip: For help calculating any of these numbers, refer to “Do You Know Your 10 Critical Numbers?”

Next, forecast your year-end position with whatever information you currently have available. For example, you might know that you have two new clients starting in Q4 and anticipate hiring three new team members. Be sure to also consider your cash flow and investments you plan to make into the company. Use your forecast plus your YTD actual numbers to predict where you anticipate ending your year.

Finally, compare your year-end projection with the plan you made for the year. Looking at projected YE revenue, GPP and NPP, does your company’s performance compare favorably or unfavorably with the targets you had wanted to hit?

Year-End Financial Planning Task #2: Setting New Targets

Sit with your department heads and discuss their plans for the coming year, as well as for the coming three to five years.

Once you have an agreed-upon list of goals, it’s important to consider whether the goals are realistic. For instance, let’s say that your executive team decides that a goal for 2022 should be to double revenue. Some leaders would love the idea of doubled revenue and take off immediately in pursuit of this lofty goal. But if you want to increase your chances of hitting that target, as well as doing it in a way that protects your company’s financial health, take a step back to ask whether there is a way to achieve this goal realistically. If not, it may be time to scale back the target by, for example, aiming to increase revenue by 50 percent.

Year-End Financial Planning Task #3: Create a Strategic Financial Plan

Once you’ve locked in goals for next year, create a financial plan that reflects the group’s intentions, as well as the company’s actual standing.

Consider our example of the goal to double revenue. There are numerous ways to achieve that goal, including:

  • Doubling the number of customers served
  • Selling more of existing products and services to existing customers
  • Introducing new products and services to the existing customer base

These options may or may not be feasible based on your company’s current standing and performance.

For example, perhaps you don’t have the sales support needed to reach prospects and/or the team needed to support twice the customers once they are onboarded. Creating new products and services may sound exciting, but perhaps your marketing team doesn’t currently have the bandwidth to produce the campaigns needed to bring the new offerings to market. It’s important to get clear on what would be required to successfully achieve your initiatives and assess whether your company has what it takes to execute.

Once you’re clear what is needed in terms of time, money and resources, you can decide which initiatives will get the green light. Then it becomes time to create a strategic financial plan to support your initiatives. This means that you have a plan for how you’ll spend money to implement your initiatives, as well as financial targets you expect to hit once the strategies are fully executed.

For example, if your team plans to double sales by reaching more customers, you may need to hire more salespeople. But if you plan to double revenue by rolling out a new product, your strategic financial plan needs to spell out how you’ll invest money into product design, extra marketing, and maybe even new equipment.

Trying to create this type of detailed planning is challenging when you’re immersed in the day-to-day operations of your business. Take yourself and your executive team on a planning retreat away from the office to create the mental and physical space to reflect on what’s happened in your business this year, as well as what you want to accomplish next year.

Conversations in your retreat should focus on three key questions:

  • What changes do you want to see next year?
  • What activities are needed to produce these changes?
  • How will those changes impact your financials – both revenue and expenses?

Year-End Financial Planning Task #4: Year-End Tax Planning  

As you make decisions, remember to consider the impact on your tax results. There may be strategies you can execute in the final weeks of 2021 to minimize your taxes this year. Now is a good time to meet with your tax advisor to make crucial decisions.

For example, if you’re projecting a profit, you may have options that will reduce or even eliminate your tax bill. If you use accrual accounting, and your business had a loss carried forward from last year, you could use the loss to reduce your taxes to zero. But if you use cash-basis accounting, you could prepay expenses for next year in fourth quarter to reduce your profit to the level you want.

Year-End Financial Planning Task #5: Create an Action Plan  

Finally, once you are clear on your financial goals for next year and what the financial ramifications of achieving those goals will be, it’s time to build your action plan. Break down the actions you’ll take to execute your plan by quarter, by month, and by initiative.

Let’s go back to our goal of wanting to double revenue. How will doubling revenue impact your overhead? Perhaps your overhead won’t double, but it will likely increase. What needs to change within your business to handle the increased workload? When do you need to start working on increasing your overhead to handle the new level of business? What milestones need to be achieved along the path to your goal of 2X revenue – and when do those milestones need to be achieved? And what will trigger the next milestone in your progression?

You may realize that a new technology stack would make it possible to increase your revenue without needing to hire more salespeople. Setting up that new technology stack would be an important first milestone. But you might realize that the new tech stack will get you only partway to your goal of 2X revenue.

You might then identify that once the new tech stack is implemented, allowing your existing team to sell more, it will be time to start working on your second milestone of implementing a second piece of the new tech stack. This second piece will allow you to achieve a third milestone of hiring ten more sales professionals to continue moving toward your financial target.

By the end of this process, you’ll know what major milestones you need to hit, and what activities needs to happen each month and/or quarter to achieve your goals by the end of 2022.

Year-End Planning Puts You in Control

Running a business can be stressful, especially when factors that impact your business (say, a worldwide pandemic) are outside of your control. The past two years of uncertainty, chaos and upheaval have left many business owners craving a greater sense of control of their experience in 2022.

Control in the world of business financial management means having a plan. When you have a plan that spells out not only what goal you want to achieve, but also what you’ll do to achieve your vision and how executing your plan will impact your financials, you’ll have a way to create a level of control in your business.

Use these 5 year-end financial management planning tips to build momentum in the waning weeks of 2021 and set yourself up for a robust and prosperous new year.



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