How to manage your finances in business for founders, entrepreneurs, solopreneurs, freelancers and small business owners

Whether you’re an entrepreneur, solopreneur, freelancer, or aspiring to be one, business financial plans are critical to have in your business and early on. Once you know the market is there for your product or service, then you have to figure out if this is going to make financial sense.

This month at The Lola is all about building your financial power. As part of our monthly event series, we hosted a talk with Member and financial expert Marguerite Pressley Davis on “How to Manage Your Finances in Business.” Marguerite shared some incredible small business financial advice with us which you will find in this article below.

To see the full replay and join live talks like this one sign up here.

How to manage your finances in business

 

Know where you are going when creating your financial business plan

Knowing what we are doing in our business will get us to the financial targets we set, it’s important to know where you are going and how you’re going to get there.

A spending plan VS. a budget

Firstly, think of your budget as a spending plan (b/c who likes to be on a budget?)

Your profit VS. your revenue

Focus on profit, it’s what will help you grow your business. The profit that allows you to grow and scale not the revenue b/c you could be spending the majority of your revenue in operating your business day to day.

Your cash is Queen!

Where do you stand with cash? Your cash map is the most important core part of your business financial plan. As much as you’re expected to know how profitable your business will be – you must know how much cash you’ll have and how far it’ll get you. If you don’t have cash (and a runway of it) you won’t be in business for long.

The big picture first. Your strategic plan comes before your business financial plan

Don’t think about your financial plan if you don’t have your strategic plan of why and how you’re going to spend that money.

  • Your strategic plan = the big picture plan.
  • It’s your “come to Jesus Moment”. Where are you going? Where are you focused right now? Are those aligned?
  • On your strategic plan: Are you spending based on your gut or are you spending with intention?

Your financial business plan should come from your strategic plan.

What to focus on first? Look at what’s going well and focus on what hasn’t gone well. Make adjustments where needed to grow your business.

3 KPIs to include in a financial business plan

Your KPIs (key performance indicators) are a critical part of your financial business plan – we need to measure to figure out how effective it is.

  1. How much will I make?
  2. How much do I need to make it?
  3. What will that leave me in profit?

3 simple financial habits you should practice

CEO confidence comes from knowing our numbers and where we stand with finances.

  1. Check your bank accounts often
      • Look at your bank accounts on a weekly basis, don’t wait until the end of the month. Look at your progress, it will let you know if you are on track sooner rather than later, giving you time to adjust faster.
      • Make it a habit! Use this daily habits app: https://apps.apple.com/us/app/daily-habits-habit-tracker/id1133119692
  2. Organize your finances every single week
      • By not doing it or waiting till the end of the month, you’re taking a cool opportunity to course-correct if needed.
      • What to monitor monthly? Keep your eye on changes in cash flow, churn, sales, cost to operate, cost of input.
  3. Be mindful of your thoughts when it comes to money
      • What we tell ourselves mentally is another habit. Approach with positivity and say “let’s do it”

Top 3 cash flow hacks / where money is being left on the table

Where does cash typically leak out of small businesses?

Not accounting for your time
  • How we’re counting (or not counting) for our own time. We tend to be optimistic when it comes to how long things take. If you’re not keeping track of it, you’re likely not taking into account, how long it actually takes for you to complete a project, hacking yourself out of cash. You wouldn’t want anyone to work for free for you, you shouldn’t expect yourself to either.
  • Awareness is the best place to start when it comes to managing your time. https://www.rescuetime.com/
How you price your products and services
  • You could be starting behind by not doing the work of pricing yourself accurately – what is that value that you are creating through your product and service and then based on the value, figure out what you should be priced at.
  • If you’re built your pricing based on your competitor’s pricing ask yourself, how did they come up with their pricing? What methods did they use? Are you sure they got it right?
How you’re tracking your expenses. Keep good financial records
  • If you don’t know where you’re spending or what’s profitable to you. We cannot make informed decisions if we don’t have the data to track. When you’re equipped with the information, think about the confidence that brings

5 key things to look at when reviewing your finances

  • Changes in cash
    • Are changes expected to be and why or why not
  • Your churn rate
    • How does that churn expectation relate to reality? It’s so much more expensive to get a new client than to keep your existing ones happy
  • Review your overall sales
    • You can’t have profitability if you’re not bringing in the sales.
  • What is your customer Acquisition Cost?
    • What is it actually costing me to bring in clientele? Ensure you’re going to get that return from the individual.
  • Rising Cost of goods (or COGS)
    • What is it actually costing me to bring in clientele? Ensure you’re going to get that return from the individual.

Growing and scaling your business

Growth and scale are actually independent. We can grow our business but that doesn’t mean we can scale it.

  • Growth: doing something well at a small scale.
  • Scale: can I go from 60 to 1000 clients.
You can’t grow if you don’t have the systems in place to scale
  • Successes come when you develop systems that are built for the end goal,l not the small start. There is no point in trying to grow your business if you don’t have the systems in place to scale it first. You will get more clients but won’t be able to handle them.

When looking to see if you can scale your business, ask these questions;

Do I have the systems in place to handle volume? Stress test them!
  • Ask yourself, do I have the right systems and processes in place to be able to do this from across multiple cities or even the whole country?
  • Decide what should be automated vs hiring someone to do the task you need to be successful.
  • Stress test early on. When you’re doing things on a small scale, ask yourself and stress test it. E.G, if you’re doing 10 transactions a month, but what if 10 becomes 10k transactions? Can I move from 10 clients to 100? Stress-test your processes. Ultimately, companies will grow too quickly and your systems and processes will break
Are you playing too small? Develop a think big mindset.
  • Develop actions that will help scale your business. No small mindsets please! You will stay small as long as your actions, systems and processes are aligned to playing small.
  • If you do want to play big and want to grow and scale, then shift your mindset and also how you manage your time and operate your business. Are your actions aligned to growth and scale or solving problems one by one?
Collaborations are the fastest way to scale
  • Collaboration is key to successful business scaling. You can see farther standing on the shoulders of giants – identify the giants you want to get the support from.
  • Think about the best way to approach them. What’s in it for them? Is what you’re proposing equitable? How can you make it a win/win?

If you want growth and scale you need to plan ahead

  • If you need to build a website or online platform to host your customers, the first thing you build (your minimum viable product) might be less expensive, but will you be throwing that cash down the drain in a year or so when you have to start over because the site can’t handle what you need it to? Look forward, decide first where you want to go and how long it will take to get there before investing time and money into a solution that can’t grow with you.

Are you looking to diversify your revenue?

 

When diversifying, start with your customers

One of the best places to figure out how to diversify your revenue is to go back to your customers. People want to help! They are going to inform how you bring in new revenue streams, tweak them and diversify. Sometimes you have to incentivize them but that feedback is key. Additional growth opportunities can come from unexpected places!

 

Marguerite Pressley Davis’s Financial Resources:

Finance Savvy CEO Resources
Finance Savvy CEO Blog
Finance Savvy CEO podcast

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