Earlier this week, I wrote a blog post about “under-earners” – one of the top signs that you might be an an underearner is that you aren't paying enough attention to your business finances. In honor of tax day AND because I have a degree in accounting – I'm sharing my top hints for creating a strong financial foundation for your business.
Here are four tips:
1. Understand the difference between cash flow and sales. Monthly sales are the total invoices billed and cash flow is the actual pymts received each month. You should know both numbers. In an ideal world, they would be the same – but often they are not. You need to make sure you have enough money in the bank to run your business.
2. It is a pipe dream to think that you can grow a business quickly without spending money. Franchises cost to get started. If you have a retail store you have an inventory investment. If you are selling your knowledge or services it's no different. You need invest in your biz. Big investments might include business coaching (I got a fast start by making a significant investment up front) or purchasing advertising for your business.
3. Be sure you have a separate checking account for your business. All cash receipts and expenses paid go through that acct. Do not pay personal bills from that acct. Pay yourself and then pay your personal bills from that money. (Also, if you need to pay business expenses with personal funds – put the money in the business account (and track it) and pay the bills from there.
4. Get a separate credit card for the business. In The beginning I used a card that was a personal card but used it exclusively for the business. That way there is no argument about whether the interest is deductible. Having a separate card also makes it MUCH easier to keep your business books in tip top shape.
5. Audit your spending – Spend a little time each quarter doing a deep-dive into your business finances. Are you subscribed to any services or membership sites that you aren't using any more? You can save yourself hundreds of dollars by keeping a sharp eye on those expenses (all those $7 charges add up).
What are your favorite tricks for keeping on track financially?