The new year is a popular time for people to think about their finances; for example how they can increase income, cut outgoings, and deal with issues such as debt. But it also makes sense at the start of the year for freelancers, contractors, and the self-employed to review their performance over the past 12 months and think about what business strategy changes they can make to boost their revenues and profitability over the course of 2017.
Constant business planning
Often, when you set up a business or start working for yourself, you will draw up a business plan – particularly if you are looking for finance to get your operation off the ground.
An initial plan will set out who your target customers are expected to be, as well as how you intend to market your services. It should also set out predicted revenues, overheads and profit levels.
But all too often, self-employed people can find it very difficult to take this kind of analytical approach on an ongoing basis. With so much time needed to devote to day-to-day operations and dealing with problems as they arise, most entrepreneurs are unable to find a regular opportunity to think strategically about how they can maximise their success.
Take time to step back
Ongoing business planning doesn’t have to be done in a formal way, but most advisers and coaches recommend that you take a step back from your everyday work perhaps once every few weeks to think strategically.
This could involve simply looking at what your competitors are doing to see if there are any tips you could pick up – or to see if their activities could potentially threaten your own profitability.
You could also look at any new sales opportunities. For example, is there any way you could get more business out of your existing customers? Or could you try to enter a new market, whether this is in a new geographic location or a different business sector?
A key part of strategic planning involves analysing what you are doing on a day-to-day basis. It might not seem obvious when you are hard at work, but it is extremely useful to identify which are your most and least profitable clients.
For example, some customers may make much greater demands on your time, even though they are paying you the same rate. Is there a way of increasing the amount of business you do with your low-maintenance clients? Or could you charge “difficult” customers more to reflect the extra time you devote to them?
The same applies to clients who pay late – if you spend a lot of time chasing up outstanding invoices, look at imposing stricter payment terms (if possible) or seek alternative customers.
Look at the amount of time you spend on non-core activities – the work that you can’t actually charge for. If you’re frequently distracted by the likes of accounting issues or problems with IT, carry out a cost-benefit analysis with regards to outsourcing these services. It may well be that the time you free up could be used much more productively – and more profitably.
The same applies to marketing your business. Could you attract new customers in a more efficient way by paying a third party to run a marketing campaign, or to give you some advice on how to market your services online or on social media?
Cutting your overheads
Revenues aren’t the only issue when it comes to making a success of your business – keeping your expenses in check can be just as important.
Use the start of the year as an opportunity to look at what you are paying for the likes of energy, insurance, and professional services such as accountancy or legal assistance.
When it comes to energy and insurance, you will probably only have a short window during which to change tariff or supplier. Make a note on your calendar of when your current deals come to an end.
Likewise, look at how much you are spending on accountants’ fees and speak to other providers to see if they could offer the same service at a lower rate.
Get into the right habits
The kind of consideration to business strategy outlined above probably needs to be carried out more than once a year. Try to set aside time every few months – maybe just once a quarter – to reflect on what is working and what isn’t, and to think about what changes you could make.
If possible, try to keep track on a weekly basis of how you are spending your time to help you identify problem areas. Similarly, keeping on top of your business’s financial performance – in particular checking that money is coming in from customers quickly enough to cover your expenses – will help you spot any cashflow issues before they become too serious.