A great business is a business that is intentional. Creating a business by design versus a business by default requires vision and planning. One of the best places to start this journey is to create winning habits around your business’s finances.
You may be the kind of business owner (frankly, like most business owners) who avoids the topic of money in your business. You do this for a couple of reasons:
1. It’s money. Money is a topic that generally makes people uncomfortable, and one of the most common destructive habits that exist for business owners is with regards to being a money avoider. Don’t think people avoid this topic? Bring up at the next BBQ that you attend, and see what happens.
2. It’s accounting. I studied business in college. I live, eat and breathe business and everything about it. Even though I love business, accounting is not my favorite. I bet it’s not yours either. Who wants to look at things they don’t like? Count me out.
So why bother?
You bother because you started your business to serve and fulfill a mission that creates value for a certain group of people who love the product or service that you deliver. Money allows you to serve more people and creates opportunities to increase the value that you provide to those people. It’s hard to serve when you don’t have any financial margin to do it.
Your money is the byproduct of how well you are serving your mission.
Here are a few ideas to get your business’s finances on the right track.
Key Idea No. 1: Don’t Delegate Your Accounting Too Soon
Most business owners I see delegate their accounting too soon. I realize this sounds like counterintuitive advice in a sea of advice that says that you should work in your purpose and delegate the rest.
At the root of great delegation is a functional understanding of what you are delegating. If you are like most business owners, you may skip this step because accounting sucks is boring. But delegate too soon, and it puts you in a position of likely making a bad hire when you onboard help for your business finances.
Where do you go to educate yourself?
To start, a book I recommend is Financial Intelligence for Entrepreneurs by Joe Knight, John Case and Karen Berman. This will walk you through the basics of your business’s finances.
One thing you will realize once you get more educated is that there are a lot of accountants out there who don’t have a functional understanding of how business finance works.
Key Idea No. 2: Build A Team
I know. I just told you not to do this. But once you have completed idea No. 1 and educated yourself on the accounting and finance of your business, you are ready to take the next step and get help. In the grand scheme of things, bookkeeping and accounting belong to those actual people who enjoy doing it every day.
Because you have educated yourself, you are now positioned to make a great hire because you know what to look for.
Here are some people you want on your team:
1. Bookkeeper: Having someone stay on top of the numbers ensures that your reports and metrics are accurate and on time.
2. Tax planner: If you are a business owner and you have a tax preparer, it’s time to move your business elsewhere. There is nothing wrong with a tax preparer for W-2 wage earners, but you are leaving a lot of money on the table in tax overpayment if you are not using a tax planner. A tax planner is an accountant who will be proactive with your tax situation and meet with you regularly to look for ways to legally and ethically minimize your tax exposure.
Key Idea No. 3: Make Time To Analyze Your Reports
Step one in the reporting process is to create space to review and analyze your reports. Having reports won’t do you any good if you don’t take the time to look at them.
Here are some reports that you may consider using:
1. Current year-to-date P&L
2. Current month P&L
3. Month-by-month breakdown of your P&L
4. Detailed transaction P&L for a given month
5. Balance sheet
6. Statement of cash flows
7. Your business metrics to help you determine how well your company is performing
Some other tips/tools/reports to assist you include your budget and ensuring you have an accurate cost of goods sold to assess your margins. It’s critical to your business’s long-term success that you know how much it costs you to deliver your product/service.
Key Idea No. 4: The Goal Isn’t Merely To Pay Less In Taxes
There are a lot of business owners who look to save taxes at the end of the year. They attempt to minimize their tax exposure by buying things for their business — things they don’t necessarily need. The goal isn’t always to pay less tax. As your business grows and you make more money, you are going to pay more in taxes. If that happens, congratulations. You are growing. Don’t spend money just for the sake of saving tax.
Consult a tax professional to assist you in putting some of the above thoughts together, and watch how creating intention around your money will help you create powerful intention in other areas of your business.