2023 FORECAST

Have you set up your 2023 forecast yet?

Tax Season is over, and 99% of all tax preparers take some time off in April and May. Tax season is brutal for them, and a break is well deserved. As May ends, they are gearing up for round two – extended tax returns! But where does that leave you? You were just told you owed a lot of money and don't want to be in this position again next year. You still have questions and need some help. Now they are too busy again? What should you be doing now, and who is going to help you?

It's essential for businesses to set clear goals and plan ahead. One crucial aspect of this planning process is creating a comprehensive forecast for the year. Ideally, next year's plan is established in the fourth quarter of the current year. But let's not kid ourselves – what we should do always gets delayed by what needs to be done first. Most small business entrepreneurs still have not had time to put together their forecast. Yet, setting up your 2023 forecast is the most valuable tool you can have to make strategic decisions throughout the rest of the year.

Here is what we do at JOLT for our clients:

1. Start with Sales – Forecast an aggressive sales growth plan for your business – best-case scenario. I usually tell clients that 5% growth will happen organically if you just show up to work. What else are you going to do, and how are you going to do it? Be aggressive. Entrepreneurs are inherently competitive. If you set a tough goal, you will work hard to achieve it. Even if you fall short at the end of the year, you will still exceed any other conservative goal you had in mind. Identify the tools you are going to use to help you get there and determine a way to measure it. If it is not working, be ready to change gears and have alternative paths.

2. Expenses – Use last year's expenses as a starting point and only identify items that you can strategically manage. If sales increase by 20%, you can anticipate a similar increase in the cost of goods sold. Other expenses like subscriptions and travel may change, but you have no real control over them, and making significant adjustments to them strategically may not be feasible. When we help clients with their forecasts, we usually only include three lines: cost of goods sold, payroll, and other expenses. This keeps the forecast simple and manageable. I recommend overly simplifying the expense part of your forecast at the onset. You can add more details as warranted later in the year.

3. Build in a tax projection immediately – Now that you have a forecast, add in your next year's tax projection. Based on last year's tax return and this year's forecasted growth, determine your tax liability for next year. By forecasting your tax obligations early in the year, you have ample time to implement strategic decisions to minimize your tax liability. Whether you need to find tax savings opportunities or need cash flow planning, you have the time you need to get there. In my experience, CPAs give you estimated tax vouchers with your tax returns and check in with you at the end of the year (if you are lucky). This is not enough. You need more time to effectively plan.

If your CPA is too busy to help you now, get someone else to assist you. There is no rule that says you can only use one advisor. If they don't have the time or interest, find someone else to help you.

Setting up your 2023 forecast is a strategic step that will give your business a competitive advantage over your peers. Remember, a forecast is not a static document. Regularly review and update your forecast based on actual performance and changing market dynamics. This iterative process allows you to make data-driven decisions, adjust strategies as needed, and seize opportunities for growth and optimization.

By taking the time to set up a forecast, you position your business for success. Embrace the power of forecasting and let it guide you, ensuring a prosperous and financially sound year ahead.