Planning Your 2021 Business Finances

While maintaining your financial records might seem tedious, it’s actually straightforward when using bookkeeping or accounting apps like QuickBooks, Sage, or Xero. These tools keep your data up to date by automatically syncing with your operations and categorizing income and expenses. This allows you to quickly review your finances and download reports with ease. However, analyzing your main financial statements—balance sheet, income statement, and cash flow statement—can be more time-consuming. Here’s what you need to know about these essential financial documents.

Key Financial Statements

1. Income Statement (Profit and Loss Statement - P&L):
The income statement reflects revenue, expenses, profits, and losses over a specific period, often produced monthly or quarterly. Comparing trends month-over-month can provide more valuable insights than viewing data in isolation.

2. Cash Flow Statement:
This document shows how cash flows in and out of your business, detailing where your income and expenses come from and whether you’re turning a profit or loss. It helps identify if more cash is going out than coming in, highlighting potential areas for cost-cutting or temporary funding needs.

3. Balance Sheet:
Unlike income or cash flow statements, a balance sheet offers a snapshot of your financial position on a specific date. It details your assets, liabilities, and equity:

• Assets: Items you own, such as cash, inventory, equipment, and property.
• Liabilities: What you owe, including loans, wages, taxes, and accounts payable.
• Equity: What would be left after selling assets and paying off liabilities.
  Your balance sheet helps evaluate your business’s liquidity (ability to cover debts) and leverage (equity vs. debt).

Setting Financial Goals for 2021

With your financial documents in order, you’re ready to set your 2021 goals. Start by determining what you want to achieve by 2022, ensuring these goals are realistic. Once set, prepare cash flow estimates and forecasts to align with your business objectives.

Preparing a Cash Flow Forecast

A cash flow forecast projects your future expenses and revenue using past cash flow data. Keep in mind potential economic impacts, such as political tensions or COVID-19 fallout, which may affect your business in 2021. This process helps identify potential gaps and opportunities in your financial planning.

Estimating Costs

Consider any upcoming projects, such as expanding, building a new website, acquiring equipment, or moving into e-commerce. Plan for the associated expenses and incorporate them into your long-term budget. If immediate costs arise, consider a merchant cash advance for quick access to working capital, which can be secured within 48 hours.

Regular Financial Check-ins

Once the year starts, don’t get lost in daily operations. Regularly (at least monthly) review your plans and numbers, allowing you to adjust and keep track of your overall business goals.

The Bottom Line

Getting your finances organized may be time-consuming, but it’s worth it. By doing the work upfront, you’ll free up time and energy to focus on the bigger picture and long-term success of your business.

‍