Be Cautious When Planning 2024!Jan 04, 2024
I love this time of year! As a numbers geek, I love to go back through all of my numbers for last year and confirm where my leads came from, my conversion rates, ROI, etc. I know many of you don’t enjoy this and look at it as a chore. But remember, we can’t go forward without looking back!
Today I just want to give a word of caution when it comes to planning for 2024. As a coach, the most common issue with clients is that they are over-exuberant with projections, budgets, and especially goals.
When doing your projections and goals for 2024 you need to look at several sources. The first is your data from last year. What was the trend versus 2022? What was the reasoning for the increase or decrease from 2022 to 2023? Will those same reasons apply to 2024?
Once you have assessed your business from 2023 vs 2022, look at expert opinions that apply to you. Of course, you want to review Laurence Yun’s prediction from the National Association of Realtors and your state forecast. Research their reasons for their predictions and determine if that will apply to your market.
Many economists believe that the Fed will cut interest rates multiple times in 2024. They also said that we were going to have a recession in 2023, they were wrong then, and I believe they are wrong for 2024 as well. As long as the job numbers stay relatively good, (they are currently at near-record low unemployment), people will be able to buy things and the Fed will be reluctant to cut rates. If rates don’t fall, current homeowners will not sell and move out of their 2%-3% interest rates, so we will still have inventory issues in 2024.
With this in mind, I am budgeting cautiously for 2024. In my market, inventory is a huge issue, and we can’t sell what is not available. Sales in my market were down 26% vs 2022 and prices were up 1.6%. The decrease in sales is mostly due to inventory issues, but also due to higher rates and problems getting insurance. Well, affordable insurance anyway.
Fortunately, my sales were up 60%, but 40% of those were due to an expansion into a new market. So, if I took that new market out of the equation, I was only up 20% on existing markets. Thus, if I felt my business would be similar to 2023, the logical percentage increase for my 2024 budget would be +20%, right?
So, what did I budget for 2024? I budgeted flat vs. 2023. I know what you’re thinking, “Wait, you just said that you should budget up 20%!” Yep, I did, but keep in mind that the market was down 26%. Yes, I was up 20%, but I always budget cautiously, and I feel that budgeting flat is as aggressive as I want to be when the market was down 26%. It's always better to budget cautiously and be surprised on the upside than vice versa.
It's important to know that when I do my planning for the upcoming year, I always do two scenarios. The first is what I call ENOUGH. ENOUGH is the base scenario of what I feel the market will do in the upcoming year. In this instance, I feel that the market will be very similar to last year, so to budget for an increase is dangerous, and I feel budgeting flat vs. 2023 is safe. ENOUGH is always the most conservative version of what I feel the market will do.
Now that I have determined my ENOUGH, I work backward and fill in my budget. Since my ENOUGH for 2024 is flat vs 2023, it will be easy to fill in my budget, starting with what I spent in 2023. Once this is done, I massage the numbers, by pulling from expenses that didn’t produce income and adding to those that did. I also account for any new marketing or expected expenses by cutting other areas of the budget. In the end, my overall net should be very similar to my trend, (flat vs. 2023.) I then transfer that trend to my personal budget to ensure that I have a conservative budget in business and personally.
The second projection that I do is what I call MORE THAN ENOUGH. This is the fun one. This portion of the worksheet is more of a goal sheet. This is where I put what I think will happen in a best-case scenario and if I hit all of my goals for the year. For 2024, my MORE THAN ENOUGH is a 50% increase over 2023. If I hit my MORE THAN ENOUGH, or even just beat the ENOUGH budget, it leaves extra cash at the end of the year. That cash is used for a reserve in the business account that can be used for the months that I underestimated the ENOUGH. Once the reserves are at my budgeted levels, a small portion of the remaining funds are treated as a bonus and are put into an account labeled GOALS. This is where I pull funds to meet my personal goals. A new boat, a new car, a beach house, etc. Yep, it may take a few years to reach those goals, but it’s always nice to have an account dedicated to your goals so you can see how close you are!
This two-step system has worked well for me over the years. The key is to stick to the budget, even if you are having a great year so the funds go into the reserves. That’s your safety blanket.
Many businesspeople make budgets off of goals, rather than logic, and that is a huge mistake. You should budget off of what happened the prior year and apply the trend that you think will happen in the upcoming year. Both business and personal budgets must be considered, otherwise you will be robbing one account to feed the other. Always budget conservatively, but don’t be afraid to try new things. The only way to grow your business is to try new things, budget for it, make a plan, and then track results. If something works, expand on it, if it doesn’t work, kill it, and move on to another idea.
Hopefully you all budget for ENOUGH and end up with MORE THAN ENOUGH! If you have any questions or would like a copy of my worksheets, please reach out.
Thank you for your time,
Stay connected with new blogs and updates!
Join my mailing list, don't worry, your information will not be shared.
We hate SPAM. We will never sell your information, for any reason.