It’s no secret that it’s important to keep the money in your business organized. From bank statements to invoices to tax returns there’s a lot to manage, and it’s easy when we get busy to let this stuff slide. The downside to disorganization in your business finances is you might miss important deadlines, forget to collect on payments and have a hard time measuring the overall health of your business.
Getting your business’ finances in order doesn’t have to be a chore. With a few simple steps, you’ll be on your way to living an organized life that even Marie Kondo would be proud of. The key is to smart small, act daily and fight the urge to feel overwhelmed. Over the next 7 weeks (or days if you’re really motivated!), focus on one of these hacks each week and by the end of the 7 weeks your business, and your stress, will be in a much better state.
Hack #1: Set up money meetings.
This is by far my favorite hack of all. Schedule time in your calendar, on a regular basis, to review your business finances. If you’re just starting out, I suggest 30 minutes every week. Once you get the hang of things, you can bump this down to one every 2 weeks or even monthly, depending on how often revenue comes into your business.
The trick to these meetings is to get them in your calendar now (I’ve already got these in mine for all of 2019), and to honor this time. The occasion is rare that I reschedule my money meetings for something else and I never cancel them (if I have to move it, I make sure to reschedule it).
So what do you do at these money meetings? To start off, review the 4 most important financial documents in your business – the balance sheet, income statement, cash flow statement and budget.
Your balance sheet shows what assets and liabilities your business has; if you don’t create a balance sheet for your business, at least review your bank and investment accounts (your assets) and your credit card statements and outstanding invoices (your liabilities). Get a sense for your business’ net worth (assets – liabilities).
The income statement (also called a profit and loss statement) shows the revenues and expenses in your business. Again, if you don’t prepare one for your business, at least look at the revenues you have brought in over the last month, what invoices you are waiting to be paid on, and what your expenses have been over the same period. Get a sense for your net income (i.e., your business’ profit) which is its revenues minus expenses.
The cash flow statement shows just that – the cash flows in your business. This is important to understand where cash has come from and where it has gone to. Again, if you don’t prepare a cash flow statement, at least review your bank statements to get a sense for what’s happening with the cash, how often it’s coming in or leaving and how much of a cash cushion you have on a regular basis.
Lastly, review your budget to actual. Your budget shows what you projected for revenues and expenses over a period of time, and the actual is when you take what you’ve actually brought in and spent and compare it to the budget. While it’s ok to have some differences (you can’t always predict perfectly what will happen in your business!) you want to understand large revenue shortfalls or expense overruns and create a plan to offset them (by reducing other expenses or increasing revenues).
Hack #2: Create a budget.
Speaking of budgets, your business should have one. If you aren’t in the habit of creating regular budgets, take a few minutes to put one together. A simple budget shouldn’t take you longer than 15-30 minutes to complete. At a minimum, your budget should have:
- Time Period – ideally you’ll have a budget for the entire year, but if you’re just starting out, focus on the next 3 months if a year feels like too much
- Revenues – this is how much you expect to take in for your products or services. Your budgeted revenues should be based on your revenues in prior years plus (or minus) any adjustments expected this year (growth, new product lines, etc.)
- Cost of Goods Sold (COGS) – these are expenses directly related to the product you are selling. For example, if you sell cookies, the butter, sugar and eggs would be COGS. These are typically variable expenses, meaning that they vary depending on how much you sell. Make sure that your budget for COGS is calculated correctly based on your projected number of sales.
- Operating Expenses – these are expenses that are not directly related to the product or service you are selling but are nonetheless business expenses you incur to run your business. Examples are rent, credit card transaction fees, website fees, etc. Sometimes these can be variable (defined above), so make sure they are calculated correctly based on what you’ve projected for sales.
- Buffer – I always advise including a buffer in your budget. From clients paying late to unexpected expenses, building a buffer is key to ensure your budget isn’t shot the moment something doesn’t go according to plan. The amount of the buffer is up to you; I personally like 10% but it depends on how comfortable you are in your numbers. How do you apply the buffer? Take the percentage you’ve decided on and increase all of your expenses by that amount. Want to be super conservative? Take the same percentage and reduce your revenues by that percentage as well.
There are a lot more factors to consider when creating a comprehensive budget, but starting simple is OK and is better than nothing. Having a good business budget gives you a foundation to use as a basis and a metric to measure against throughout the year.
Hack #3 – Get an accounting system.
While it’s true that implementing an accounting system can be a less-than-simple process, given the ease of technology today and the lack of complexity of most small businesses, this hack shouldn’t actually be too hard for most people.
There are a variety of beneficial and easy-to-use accounting systems out there. If your business finances are super simple, start with something like Wave or FreshBooks. If you need a bit more complexity (you have payroll or sales tax), QuickBooks is a good option for you.
Even if you don’t have a lot of time, at least sign up for the software and get your bank account and credit card accounts connected. This will start to track the money in your business so that you can get a good sense for where everything stands.
Hack #4 – Implement a system for tracking your receipts
Beware the shoebox of receipts. If you’re still keeping paper copies of your purchases, there’s a better way. For low or no cost, there are several solutions out there that will help you keep your receipts organized and all in one place so that come tax time, you’re not digging around in that old Manolo Blahnik box.
Here are a few of our favorites:
Hack #5 – Schedule Download Days
Speaking of receipts, you’ll also want to set up a good system for those invoices you receive online for monthly recurring expenses. You know, for things like website hosting and your email service provider. Instead of downloading each invoice every month, set up download days every quarter where you log into all of your accounts and download the invoices from the last 3 months, and save everything into one folder on your computer (ideally in the cloud for safe storage!).
Download days are more efficient than flagging the invoices as they come in or trying to log into each account every time the invoice is issued. Because most online accounts keep invoices for at least 90 days, you’re generally safe if you save these down every quarter.
Hack #6 – Digitize Your Statements
This one’s simple, but if you’re still receiving paper invoices or bills, change that ASAP. Most (if not all) banks, credit cards and utility providers now provide the option to receive electronic bills, so take them up on it. Keeping a lot of paper around is a surefire way to welcome disorganization and lose an important bill.
Hack #7 – Separate Your Funds
If you’re still writing business expenses out of your personal bank account (or credit card), now’s the time to get separate bank accounts. It’s never a good idea to commingle your personal and business accounts, for several reasons. First, it’s a lot easier to track your business’ accounting when you don’t have to separate out your personal charges. Second, having the two separate is key come tax time. In the event you are audited, it’ll cost you a lot less time and money if your accounts are separate and will make it a lot easier to argue that something is a justified business expense.
Many banks now offer no-fee business checking accounts. This goes for credit cards as well. Just make sure to confirm there are no minimum balance requirements or limitations on the number of transactions you can have each month. It’ll also help keep your accounting organized if you choose a bank that integrates with your payment and accounting software(s).
Here are some of our favorite no-fee, no-minimum balance accounts:
Each of these 7 steps will ensure that your business finances are organized, well-managed and stress-free. Start small by choosing one step each day or week to focus on and implement, until you have them all complete. Making small changes in the way you manage your business’ finances can make a huge difference and ensure that deadlines are not missed, payments are collected on time, and you always have a good sense of the financial health of your business.