Preparing next year’s plan

A financial plan is a company's roadmap on reaching goals while minimizing risk. When working on next year’s plan there are a couple of factors which need to be gathered before getting started.  Such as pricing structure, looking at trends to determine correlation between revenue and direct expenses, how your business compares to the industry, understanding market size and share, knowing customer preferences and consumption patterns, seasonality and nay COVID effects on your business.

Once you have gathered those items. The next step is to work on Volume and Revenue. What do you anticipate revenue to be next year? Once you have revenue you can back into volume or if you know volume for next year, you can calculate revenue.  What are your direct expenses (any expenses driven by revenue)?

Next, determine Operating expenses (split them into fixed and variable) and try to spend more time on variable expenses as they are not as straight forward. Once you have completed all items, now you can start calculating profitability ratios, such as Gross Margin, Operating Margin and Net Profit Margin. You can compare this against previous years to determine next year’s growth.