As a small business owner you probably don’t have the team budget for a Chief Financial Officer or “CFO” but I would argue that mastering this area of business can be the difference between “making it” as an entrepreneur and becoming another statistic. We all know that “keeping it in the black” is super important, if not THE most important part of being a small business owner but I think two things hold us back:
We don’t love looking at numbers and financials and we would rather focus on marketing, sales and product creation; and We don’t know how to manage our business’ finances. I’m a serial entrepreneur who has sold two businesses and I now work with entrepreneurs to empower them around their business finances and help them find more aligned profit at Dianahouse.com.
The first thing I want to reassure you of is that you are NOT alone. This seems to be a black hole for a lot of entrepreneurs and even seemingly “successful” 7 and 8 figures business founders also manage to ignore this area of business for a long time and manage to operate on intuition and luck. That said, there comes a time when entrepreneurs have to “go pro” and that includes pulling up the veil of their financial reports and becoming profit bosses.
Here are my 5 tips to keep it in the black and dominate your business’ finances:
Mindset
You know that saying that saying in sports that it’s 80% mental and 20% is physical? I would argue the same thing in running a business. You need to up level and step into a mindset of winning at your business’ financials. One way of doing this is reading a money mindset book like T. Harv Eker’s “Secrets of the Millionaire Mind”.
Awareness
There is no way around it – you MUST look at your numbers. Many entrepreneurs that I work with initially can’t get into their accounting software – they either don’t know what the password is or even whether they are on Quickbooks or Xero. Get into your accounting software, open up your PL (profit and loss) and balance sheet and take a look. That’s really the first step!
Organization
Your numbers need to be organized in a way that they tell the story of the business, and where you can see what is happening by looking at the financials in 5 minutes. One way to organize the financial statements is to group all related expenses in sub categories under a master category – i.e., The marketing header has subheadings of: Advertising, FB ads, marketing printing, etc. When you do this you can start to assess the percentage of the different business expenses. Once you know this you can see where your business is spending the most and what to do about it.
Analysis
Once your profit and loss statement is organized you can start analyzing what percentage of revenue you spend in each area, and see what is in line with your goals and what is not. If you don’t have goals or targets that is something that you can proactively create to “architect” the financial side of your business.
It’s always great to do an internal audit at this stage as well and look at all of your expenses for the past 12 months and see what is strategic spending and what is no longer a good expense.
Reporting and Rhythm
You need to get into a monthly rhythm of looking at your financials, and seeing how they compare to your budget. Once you start looking at the numbers on a monthly basis you will know where you and your team need to focus to both grow the business, as well as to cut unnecessary expenses.