Business Financials: From Not Sure To Nailing It
Business financials can be well… confusing or overwhelming. And it’s not generally taught to new business owners, or seasoned ones. It’s through trial and error that most business owners work out their own ‘rule-of-thumb’ when it comes to making and managing money in their business, their way.
THE MOST COMMON STORY
Usually goes something like this… you come up with a great idea or product. You make your product, set up a way to sell the product or service, create a website and randomly choose a price above what it cost to make. Next, you have to pay tax so you get that sorted with the tax accountant. The business starts to grow – money in, money out, all at different times of the month, quarter and year. It all feels a bit hectic really, but you’re working it out as you go.
Rather than second guessing if you’ve got the basics right, check out my list of 5 items you can check you’ve got covered today.
1. BANK ACCOUNT SET UP
This is essential. You might need three or more – one for everyday business stuff, one for bills looming on the horizon (anything due further than a month out) and to save, and one for the tax and retirement fund savings. Split your cash up each week or month and forget about it. And if you’re not convinced I wrote about why you should do this here.
2. TERMS OF SALE
It’s important to keep your terms of sale tight. If you don’t get paid immediately for your product or service, what’s your process and turnaround for receiving payment? Do you send an invoice and receive the money 30 days later? Can you change your terms to payment within 7 days? Can you set up e-commerce on your website and get paid immediately? Are you getting paid in a timely, systemised manner?
3. BOOKKEEPING SYSTEMS AND PROCESSES
Depending on your business, you may or may not need a bookkeeping system. If you have lots of transactions, investigate a bookkeeping system or bookkeeper. If that’s not the case, work out a manual process (i.e. a fancy folder with plastic sleeves or an in-tray) and file those receipts in order ready to review each month. You can also track it manually with this template.
4. THE ALTERNATIVE PROFIT QUESTION
Usually described as Revenue minus Expenses = Profit. You need to know this. Was there money left over? Have you financially benefited from your work? Otherwise you’re running charity.
But did you know… the derivation of the word profit is ‘to advance, benefit or gain’. So to ask yourself the alternative profit question also. Did I benefit or gain from these business activities in other elements in my life? Do I have energy after I’ve finished tending to my business? Do I have time for other activities in my life? Did I gain in other ways? Sometimes in the quest to make a financial profit, we start to sacrifice the benefits of having time, gaining energy and enjoying our chosen lifestyle.
5. THE BIG PICTURE
Let’s now fast forward. You’ve set up your bank accounts and money is going where it needs to be weekly or monthly and you’re being paid in record time. You’re filing away receipts on autopilot or tracking it in a bookkeeping system and looking at you profit each month. It’s then time to take a step back and see the whole picture. Your checking in to also ensure you’re making a profit, but also benefiting in other areas of life. These simple systems are providing a framework for a solid financial foundation for your business. They all lead to the same place, which is financial clarity and confidence.
CLARITY IS KEY
Overwhelm and confusion struggle to co-exist where there is clarity and confidence. Clarity provides you with the opportunity to make better, well-informed decisions about business and life.
Seeing your financial situation through a clear lens helps business owners move into a position of proactive decision making instead of reactive decisions.
By taking the time to get the basics right and to look at the big picture, you’ll stop feeling unsure about your financials and be nailing it in no time. Your financials are telling you the story of your business, can you see it?
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