Digging Into Your Q3 Gold
They Say Running Your Own Business Can Feel a Bit Like a Roller Coaster…
Especially when you are only looking at your data and numbers once in a while, it can feel like you’re riding the ups and downs of it all and not really be sure whether or not you’re hitting your goals and targets. Looking at your business in an individual month or week doesn’t always give us all the information we need.
That is why I love closing out the third quarter so much, because we have nine months of data to help us!
After the close of September, I always take a step back and look at the bigger picture, and I highly encourage others to do the same. When it comes to what is working – and not working – in your business, as well as what to plan for in the future, I always recommend shifting to a fiscal year approach when it comes to measuring our progress and growth.
Here we are, in October 2020. We have officially started the fourth quarter and have almost a year of numbers to help guide us. Whether this was your worst year in business, your best, or something in between, we can use this information to show us accurately where we are, how close to hitting our goals we are, what we spent, what we made, and where we can go from here.
Before you go thinking you need a PhD in Mathematics to figure all this out, I promise you, it’s easy and provides valuable insight into your business!
First, let’s start with the fun stuff!
Step 1 in an easy 5 step process is to calculate how much money you made over the past nine months. How much revenue did your business bring in from January until now? How much was used for expenses? That number is your profit, or money that is left in your business which you can use to pay yourself, grow your business, and of course, pay your taxes with.
Determining the average of each of these numbers over the past nine months will give you a better image of where you stand, because some months will trend higher than others in most businesses.
Now, be sure you have enough for when the tax man cometh.
After you’ve figured out your profit numbers, be sure to double check that number and then set aside money for your taxes. Typically, I recommend being conservative in this area and setting aside 30-40% of your revenue right off the top for taxes. That way, there are no surprises and you’re not likely to find yourself short when it comes to paying annual taxes. Whether you pay quarterly estimated payments or not, if you’ve been in business awhile now, you might have a good idea of the percentage you need to set aside for taxes. But if you don’t know or aren’t sure, 30-40% is a good place to start. This is a fantastic way to avoid an unexpected tax bill next spring.
Time for subtraction
Once you’re sorted out how much to set aside for taxes, you’ll want to deduct the amount you’re setting aside for taxes from your total profit. I know, I know, it’s going to be painful at first to take all that money away from that profit you started with. But it’s going to give you a very accurate picture of what you have to work with and potentially take home. Here, you have some choices depending on what you discover! You may see that you have been doing great and have some extra profit to make a distribution to yourself from your cash-on-hand. You may also find out you took a bit too much and are leveraging debt or credit cards in some way to make up the difference.
This is the time to look at this as a whole and make sure that what you’re paying yourself can be sustained by your business.
Where do you want to go from here?
Once you have all of this juicy data and information, you can use it to review against your 2020 goals. You know, the ones you set back in January? They may have changed along the way, especially this year as the word “pivot” has officially made it to “2020 Word of the Year” status.
How much are you off from your goals? Are you on track for hitting the dollar amount you envisioned?
In a perfect world, you should be ¾ of the way to your annual revenue, expense, and profit goals.
If you’re behind, what do you need to focus on for the rest of the year to help you get there? Or perhaps, you need to take a breath and realize that 2020 is not all you thought it was going to be, and give yourself some grace when it comes to those originally set numbers. Maybe you need to cut some spending, or adjust how much you are taking out of your business.
If you’re ahead, do you want to take your foot off the gas a little as you breathe and feel more at ease? Do you want to continue full steam ahead and see what else you can accomplish this year? If you’ve been having the worst year of your business, are there areas of growth we can celebrate, no matter how small?
The choice is yours and only yours; but knowing your numbers can help you decide more strategically. This is a great time to assess and get into where we have just been to help us analyze where to go next. There is still time to steer the ship in a different direction this year, implement new offerings, and get into a better financial flow. These numbers will also be so helpful as you start looking at 2021 and work to set realistic and sustainable goals for the year ahead.
Ready to start your third quarter review? To make it even easier for you, I created this simple checklist that will make sure you have all the tools you need to look back at the past nine months, and plan for what is to come with the right information at hand. Enjoy!
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