Why Last Year’s Financials Will Help Your Business Prep for the Holidays

Santa Reviews Financial Statements

Yep, it’s that time of year again. For business owners, the busy holiday season is just around the corner and there’s a lot of prep work to be done before Christmas music starts playing on the radios and customers start flooding in. 

For many, financial success rides largely on how holiday season sales go. In fact, 20-40% of annual sales for SMBs take place in the last two months of the year. So it makes sense that SMB owners want to be prepared. One of the best ways to get ready? Start reviewing last year’s financial statements now. 

Financial statements can reveal a lot about your business and can help you decide exactly how much inventory to order and whether you’ll need financing help to purchase all that inventory. Make the most of your busy season with these tips. 

What Exactly Are Financial Statements? 

For those in need of a quick refresher course, financial statements are records of how your business did at a certain time. Normally, they’re created every month or quarter to look back on the accounting period before. In order to prepare financial statements, your accounting team will first need to “close the books,” ensuring that everything in your statements is accurate and final. Then, they’ll prepare the following three reports:

For the purposes of holiday planning, the income statement will be the most important financial statement to review (though the cash flow statement will also come in handy). The income statement, also known as a profit and loss statement, shows revenue and expenses over a period of time. It also gives you your “bottom line,” or profit. 

Reviewing sections of the income statement like revenue and cost of goods sold can help you plan for your upcoming sales volume and expenses. It can also reveal a lot about your customers. 

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Get to Know Your Customers

Did you know there are four categories of holiday shoppers? No surprise, there are early birds and last-minute shoppers. But there are also Black Friday warriors and, making up the biggest group, steady shoppers. 

Reviewing your income statements from October, November, and December of last year, you can probably spot the time when your sales spiked. What your business does may lend itself better to a certain kind of shopper, so analyzing your past sales can help you anticipate exactly when sales may skyrocket. 

If you paint custom watercolors of pets, for example, chances are your customers are steady shoppers and early birds. After all, it takes time to create the painting and ship it, so your shoppers are those that plan ahead. But if you own a jewelry shop in a neighborhood with a lot of foot traffic, you might see a spike later in the season. 

The better you know your customers, the better you can market to them and plan your inventory. So start by figuring out when your customers purchased—and then dig into what they purchased. 

Stock Up On Inventory 

If you’ve got the hot toy of the season, the last thing you want is to run out of stock and for customers to head to your competitors instead. 

At the same time, you don’t want to end the season with dozens of toys that aren’t selling either. When it comes to inventory, there’s a delicate balance between ordering too much and too little. And unfortunately, there’s no magic formula to foretell how much you’ll sell. The best way to plan for inventory needs is to analyze what happened last year. 

Look at your revenue first and then break down where that income came from. Did you have one big item last year and the rest were duds? Did they all sell about the same? Given your marketing plans and everything you know about your business, do you expect to sell more this year? 

Use your best judgment (and your income statement) to estimate this year’s sales. And then start to focus on what those sales will cost you. 

Don’t Forget About Labor

One of the biggest expenses of the season is payroll. Businesses that do particularly well in the holidays usually need some seasonal help to get them through. This may mean hiring some additional sales reps or customer service members to deal with the added volume. 

Look back at your payroll expenses from the previous year. If you know you need more help this year, use last year’s data to help plan ahead and anticipate the cost. 

And don’t forget that full-time employees and independent contractors are treated very differently when it comes to taxes. If you’re not sure who you need to hire, review the differences between these two groups here. 

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Get Your Financial Statements Cheat Sheets

Learn how to read your statements at a glance.

Get The Right Financing In Order

So you’ve reviewed last year’s finances and you’re gearing up for a big season ahead. Before going any further in planning, it’s time to check your cash reserves. 

If you run a highly seasonal business, you know just how difficult it can be to make sure you maintain enough money in the bank through the slow months in order to afford inventory for the high months. If you compare your projected expenses for inventory against what you currently have in cash and find that you’re coming up short (This is where the cash flow statement comes in.), now is the time to start looking at financing options. 

For many small businesses, this may mean approaching a bank for a small loan to cover inventory costs. It could also mean exploring lines of credit. Whatever the case, anyone lending money will likely want to review your financial statements, too. So make sure that your books are up to date and that you reach out to any lenders sooner rather than later. 

While the weather may not feel like it, the holiday season is upon us. Start reviewing your finances now so that you can make the most of it (and maybe even take some time off yourself this year). 

Learn more about ScaleFactor’s reporting tools and how we make reviewing your finances easier than ever. Ready to speak with an expert? Request a demo today

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