Happy New Year’s Eve? Many business owners dread it – here’s why.

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For most people, New Year’s Eve is a big party night, a chance to end the holidays with a bang, a time to look back on the previous year and make resolutions for the year ahead. But unfortunately New Year’s Eve is not a festive occasion for some of my clients. Some would even consider it the worst night of the year. But why?

“Because every year I’m reminded that New Year’s Eve is the end of the year,” a client recently told me. “That means you have to start from the beginning again.”

Despite all the reports of an economic slowdown, the fact is that most of my clients have had a pretty good 2022. economic challenges. But they battled and battled and worked hard to make the year a success. So what is their reward at the end of the year?

They can do it all again. Hurrah! All our previous achievements were short-lived. They are already in the past. They have been wiped clean. January 1 puts everything back to the beginning. And for many entrepreneurs, the future is uncertain and disturbing. That’s why they hate New Year’s Eve.

But it doesn’t have to be that way. If you’re like many of my clients and dread the start of a new year, I have a way to ease your worries: forecasting. Ask yourself this question on December 31: Do you know what your money will be on March 31, in just 90 days? If you can reasonably predict your future money, doesn’t that make you feel less uncertain about the future?

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Of course you do. Because if you know the future, you can make a plan. and having a plan for the future can help you feel better about the present. And you can do all of this with a simple, straightforward cash forecast. It’s not as hard as you think. All it takes are these four simple steps:

Step 1: Determine your overhead costs for the next 90 days

This should be easy: you know what your salary will be. You know your lease, debt and rent payments. You know what your utility, internet and other operating costs should be. I’m not asking you to predict this for the whole year. Only for the next 90 days. Write this down.

Step 2: Agree on a reasonable estimated margin – or two

This does not have to be exact. Forecasting is an art, not a science. I’m pretty sure by now that you know how much gross profit you make on a typical sale, which is the selling price minus the direct cost of materials and labor to make or deliver it. If you have a lot of products, take an average. If you only have a few product lines and it’s easy to calculate, use two margins and divide them between your sales. Again, this is just an estimate. Maybe it’s about 20%. Or 30%. Whatever it is, choose a reasonable number.

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Step 3: Now the “hard” part: forecast your cash sales

I put quotes around “difficult” because every client I have finds this difficult. But it’s not, really not. You only think about 90 days, not the whole year. I’m sure you have a list of open quotes and open orders (which have not been converted into sales). You have receivables that convert to cash in that period. You probably have some kind of pipeline report from your customer relationship management system. You can talk to your sales team to better understand what deals are cooking. And assuming you were in business before the pandemic, you have historical sales from similar time periods. Put that all together and I bet you’ll get a reasonable estimate of sales for the next three months.

So now take those sales. Apply the estimated margin and then subtract your overhead. Congratulations: You have now predicted your business cash. But you’re not quite done yet. There is one last step.

Step 4: Consider any extraordinary items

Will you soon have large debts? Big purchases? A pending big sale? Estimated tax payments? Bonuses? Is there anything else important that you think is unusual? Factor that in too.

And there you have it, your final cash profit for the next 90 days.

Take your money on New Year’s Eve, apply the final number to it (hopefully it’s positive) and you’ll know your money in 90 days. Not so tough. The tricky part is doing it the first few times. Once you master the process, and you do it every month, something big will happen: you will feel better. Why? Because you know the future. And that’s what my best clients do. They don’t like surprises. They always look ahead. They do their best to know what comes next so they can make their plans now. They take time every month to forecast their cash because they don’t like to run their businesses in the dark.

Making forecasts is easier than you think. And it’s an essential management tool to help you run your business. If you do this consistently, you will find yourself making much smarter decisions. But best of all, you’ll enjoy New Year’s Eve much, much more in the future. So happy new year.