Happy New Year’s Eve? Many Business Owners Dread It — Here’s Why.

For most people, New Year’s Eve is a big night of celebration, a chance to end the holiday season with a bang, a time to reflect on the year before and to make resolutions about the year ahead. But unfortunately, for some of my clients, New Year’s Eve is not a celebratory occasion. Some would even regard it as the worst night of the year. But, why?

Step 1: Determine your overhead for the next 90 days

This should be easy: You know what your payroll 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 forecast this for all of the year. Just the next 90 days. Write this down.

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

This doesn’t have to be exact. Forecasting is an art, not a science. By now I’m pretty sure you know how much gross profit you make on a typical sale which is the sale price less the direct cost of materials and labor to make or deliver it. If you have a lot of products take an average. If you have just a few product lines and it’s easy to calculate, then use two margins and split it amongst your sales accordingly. Again, this is just an estimate. Maybe it’s about 20%. Or 30%. Whatever it is, pick a reasonable number.

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

I put quotes around “hard” because every client I have thinks this is difficult. But it’s not, really. You’re just thinking of 90 days, not the whole year. I’m sure you have a listing of open quotes and open orders (which haven’t been converted to sales). You’ve got receivables that will convert to cash during that period. You probably have some sort of pipeline report from your customer relationship management system. You can talk to your sale team to better understand what deals are cooking. And, assuming you were in business before the pandemic, you’ve got historical sales from similar periods. Put all that together and I bet you’ll come up with a reasonable estimate of sales over the coming three months.

Step 4: Consider any extraordinary items

Do you have any big debt payments coming up? Large purchases? A pending large sale? Estimated tax payments? Bonuses? Is there anything else significant you think of that’s out of the ordinary? Figure that in too.

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Columnist on smallbiz, economy, public policy, tech for The Guardian, The Hill, Philly Inquirer, Wash Times, Forbes, Entrepreneur. Small Business owner and CPA

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Gene Marks

Columnist on smallbiz, economy, public policy, tech for The Guardian, The Hill, Philly Inquirer, Wash Times, Forbes, Entrepreneur. Small Business owner and CPA