Let’s talk about your start-up, small business, solo practice or self-employed Basic Finance. You don’t have to be a spreadsheet whiz or know a lot about finance to:
– know how much money you’re bringing in;
– know if you’re priced right; and
– know how much and when you can take money out of your business for your household.
That’s the beauty of Small Business Basic Finance. You get to know what you need to know about your business’ finances without spending a lot time, money on software and heartache learning complicated accounting.
Last week, I sent out a short 2-question survey on Small Business Basic Finance because I’ve gotten a lot of interest from my seminars and articles on how you can know what-you-need-to-know about your finances while still working on what you love – your business. I’ve been working with clients, and speaking at workshops on this for a long time and the response to my 2-question survey was overwhelming. I got about three times the number of responses as I was expecting. Thank you.
In addition to getting all of those responses on what I should definitely cover in my webinar, I also got a lot of questions about Small Business Basic Finance. I thought I’d cover a couple of questions here in this blog post and a couple more questions in next week’s post too.
Imagine knowing when you go to sleep at night that you make enough to cover your business and your household, and that your business will keep going into the future as long as you want it to. How can you, a non-finance person, figure out if your business is viable – how do you know what your business brings in, spends and then has left over as profit? Let’s start there. The beautiful thing about this question is it only requires the skills of adding, subtracting, multiplying and dividing. You don’t need big elaborate spreadsheets or software.
Here are the steps to figure out what your business brings in, spends and has leftover each month:
- Take one month, try the most recent month you have.
- Look up your business appointment/hours logs, sales book, bank statements
- Add up every dollar you brought in selling products, billable hours, services, public speaking, ads on your blog, or any other source of revenue you have.
- Add up monthly expenses, by taking your credit card statements (business and personal if you charge work items on your personal one), checking and debit card statements.
- Subtract the expenses from the revenue.
- It should not take more than an hour or two to do. It’s a lot easier than trying to wade through accounting reports.
- Do this for your most recent three months, separately
- See what the number at the bottom is and if it is positive or negative.
- The number at the bottom is your Gross Profit (profit before taxes).
- If it’s consistently positive, you have the foundation of a viable business.
Next, figure out if your business can support your household – this is very easy to do because you already have all the information you will need either online or in paper form.
- You just have to do the same for your family/household.
- Look at your credit cards, checking account and debit card statements and add up all your expenses: rent, gas, electric, dry cleaning, food, entertainment, gym, books, movies, student loans, childcare, etc. and add them up for the most recent month you have.
- This number will tell you what you need each month to live. You should plan for at least 10% extra to fulfill some goals like saving for retirement, college, or a vacation.
- If your Gross Profit (after you put aside money for taxes) is greater than your total household monthly expenses plus 10%, congratulations! You are supporting yourself.
Next week’s post will cover figuring out how much and when to pay yourself, and how to forecast for the future and what you need to know to figure out if you’re priced right.
Knowing your Small Business Basic Finances is awesome because you don’t need to be a financial/math/numbers person to be in complete control of you business’ finances! All these topics and more will be covered in great detail in my upcoming Small Business Basic Finance webinar. I will ‘hold your hand’ figuring these topics out for your business. Think how you will feel when you know you’re priced right, how much you’re making, how much you can bring home and what the future should look like.
The Small Business Finance Basics Webinar is for non-finance entrepreneurs, sole practitioners, start-up founders and heads of small businesses. I’ve been showing people small business basic finance for a long time (since I was CFO of small company in 2000), without jargon, complicated finance or accounting. People have been asking me to put my process into a webinar so they can master it themselves and not have to pay someone else to know their Small Business Basic Finances for them.
Knowing your financial situation is not just about better financial results, but the personal results of sleeping better at night knowing (not guessing or hoping) your business is financially secure.