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Revenue Planning 101

A deep dive into revenue planning and why you should do it. Read full post - https://wp.me/p85skL-Z8 Revenue planning is about forecasting your revenue and then deciding how you will allocate it against expenses and/or investments in your business. It will help you determine if you can make business investments like hiring employees to scale your service offering. Looking at your numbers, you might be surprised to find that you can afford to hire an employee for the next six months without significant financial risk. But you won’t know that unless you know your numbers and plan what to do with your revenue. Let's take a deep dive into revenue planning and why you should do it. -- What revenue do you expect? -- When it comes to revenue planning, the first thing you need to understand is expected revenue. Expected revenue is the timeframe when new revenue sources should be flowing into your agency business. When you’re selling services, the primary indicator of expected revenue is when a service agreement payment is due from clients. -- Why you should do it? -- Revenue planning allows a business owner to project when revenue will be flowing into their bank accounts, and at what frequency. Projecting revenues 6-12 months into the future means a business owner can have a big-picture understanding of their future profitability or business losses based on an unlimited number of business scenarios. The ability to project scenarios acts like a crystal ball into the future for business owners. It's highly unlikely that any single scenario will play out precisely as projected. However, seeing several situations at one time allows the business owner to form a mental model for the future of the business. This mental model permeates into every decision moving forward. Revenue planning will help you decide: 1) What business investments you can make to grow and scale your business. 2) What business expenses you will be expected to pay and when. As you grow and scale your agency business, you should plot expected revenue and expenses into a tracking spreadsheet or accounting system. This projection allows you to track when revenue is coming in alongside costs. Sophisticated agencies will start with expected revenue estimates to draft financial projections and operating budgets. These statements will show where the agency thinks revenue will be coming from and where they plan to allocate that revenue. Revenue planning helps you decide what to do in your business from an investment and expenses standpoint so that you can grow or scale your agency comfortably. A lot of times the most significant concerns we have as business owners are whether or not we should expand to meet or grow demand. Revenue projections help us understand if we can afford these risks and how long that risk will be sustainable. A business expansion could be tapping into new markets, it could be going after new clients, or it could mean hiring employees. When you hire employees, it's a major consideration. The most significant concern is whether you can pay employees six or twelve months from now, not just tomorrow. To get over this concern, I recommend projecting your current revenues for at least six months into the future. Or if you have the data, twelve months or through the end of the current year. Then compare what you would have to pay an employee salary + benefits over this time. You should be able to determine whether or not the revenue coming into the business is going to be able to support onboarding an employee into your agency business. If you get into the habit of projecting your finances, you’ll discover whether or not you have the financial capital to allocate to various business activities. This will help you manage your business risk better, by allowing you to make sound business decisions based on your numbers. Business owners who are not prepared to take on risk are the ones who don't understand the finances of their business. If you know your financial numbers, especially projected profits, then you’ll be able to take on smart risks like hiring an employee or expanding your business into other markets. As a freelancer, consultant, or agency owner you need to know when and where your revenue is coming. There's no time for SWAG (silly, wild ass guesses) in business. You can't just hope that a potential client signs a contract and pays everything on time like clockwork. While that is how business should work, many external factors can lead to interruptions or changes in payment terms. In the end, you will get paid for your work (99% of the time in my case). But it won't always happen on your timeline. Revenue planning allows you to project best and worst case scenarios for revenue, and adjust your expenses and investment plans accordingly. Read full post - https://wp.me/p85skL-Z8