As a small-business owner, you are focused on profitability, controlling costs, product quality, selling, prices and the competition. It is incredibly challenging when inflation has increased by 20% in the last four years. At the end of the second quarter of 2024, total consumer credit card debt in the United States was $1.4 trillion, an increase of 5.8% over 2023. Without a doubt, small businesses – and many larger businesses – are hurting. How do you plan for new products or increased sales when the drivers of inflation are fuel and energy? The credit-card debt is more alarming because interest on the debt will affect buying power in most households.

As challenging as this situation is, small businesses must plan and manage their finances daily. Start your budget planning for 2025 now. Make a list of your overhead categories and projected year-end expenses. Costs in 2025 will not decrease, so plan on a 5 to 10% increase. If you have a payroll, update the total cost, including benefits. If you sell products, allocate some transportation costs to each unit. If you provide a service, list each type of service, the cost of each and the estimated number of times that service will be performed in 2025. Be sure to include commuting costs above 25 miles.

Know that you have wholesale product costs, overhead expenses and payroll – how do you determine product or service selling price and profit margin? If you’re an existing business, use your 2024 sales to estimate 2025 sales. Remember, inflation reduces discretionary spending, so it’s important to be empathetic toward your customers’ financial situations.

To recover your overhead expenses, calculate the total wholesale cost of products and services and divide that total by the total overhead costs. This will result in the overhead cost per $1 of sales. Then, multiply that amount by the cost of the wholesale item and add that amount to the wholesale cost. Next, determine the profit margin percentage and include that amount in the total selling price. If you oversell your annual sales plan, every dollar of overhead becomes profit.

Understanding your financial statements provides credible insights into your business’ financial health, allowing you to change your plan or strategy. Ignoring financial reports risks missing crucial information, resulting in lost sales or profits. Setting up your business plan for 2025 is essential to success and is not difficult. Many businesses will have an accounting department that prepares the financial plan for 2025. However, small businesses may not have the staff to prepare the plan.

In the words of Colin Powell, “There are no secrets to success. It is the result of preparation, hard work and learning from failure.”