What is the number one skill that will determine if you’re a financial success or failure?

 

Money Management.

 

Yet so many business owners neglect this important aspect of their business.

 

Over the past five years I’ve worked with 100’s of clients to help them manage their day to day personal finances. Now I’ve added a new string to my bow.

 

Helping business owners manage their business finances.

 

The principles of personal and business finances are the same. The language is just different. And business finances have a few more complexities.

 

I’ve met so many outstanding and passionate business owners who are great at what they do. But they haven’t learned the skills to manage their finances.

 

In today’s newsletter I’ll share 7 of the mistakes I’ve seen business owners make with their finances. 

 

And I’ll provide some simple action steps you can take to fix them.

 

 

 

 

The first rule of managing business finances. Keep your personal and business accounts separate.

 

If you mix and match personal and business it becomes an absolute mess.

 

Your business is a separate entity. Treat your business this way. Your business feeds your personal finances.

 

Do you know how much your business must pay you to cover your lifestyle costs?

 

Action Step: Make sure you have a business bank account setup. Review the expenses coming out of your business/personal accounts. 

 

 

The rules of personal finances also apply to business finances. 

 

It’s important to have a budget. A budget is not a restrictive tool. 

 

A budget is a wealth creation tool. You can use this tool to be intentional about where your money goes instead of wondering where it went!

 

Do you know what your fixed (recurring) expenses are per month?

 

Do you know what your variable expenses are per month?

 

Make sure you include these on your budget and categorise them in each section.

 

Action Step: Create a budget for your business. Determine your fixed and variable expenses.

 

 

In personal finances, your after-tax income minus your expenses = your savings

 

In business finances, your revenue minus your expenses = your profit

 

And you pay tax on your profit (not your revenue). This is one of the advantages of earning income as a business. You pay taxes last.

 

A lot of businesses appear profitable on paper. But their profit is nowhere to be found when they open up their bank accounts!

 

 

If your business has no savings in the bank then your business has no real profit.

 

This is why implementing the Profit First system for business finances is great. Because you prioritise profit by paying yourself first.

 

Action Step: Watch ‘The Hidden Challenges of Implementing Profit First’.

 

 

Your tax is taken out before you get paid when you’re an employee. When you’re a business owner it’s your responsibility to set aside a percentage of your income for tax.

 

Forgetting to put money aside for tax has slipped up many business owners.

 

Have you ever come to the end of the year and had a massive tax bill but no money to pay it?

 

Many business owners have fallen into this trap.

 

One of the most important habits a business owner must build is setting aside money for taxes. 

 

This way you can sleep easy knowing your tax bill can be paid when the time comes. 

 

And if you over-allocate to your tax account, then you will have a nice little bonus at the end of the year. 

 

Action Step: Open up a tax bank account. Subtract your expenses from your income to work out your taxable income per month.

 

 

Accounting software is great for the reports they can generate for your accountant.

 

But they are a lousy tool for managing your business finances.

 

Do you rely on your accounting software and accountant to manage your finances?

 

The best tools to manage your business finances are a Google/Excel Sheet + your banking apps. This is the simple way to track the financial health of your business.

 

Action Step: Download my Money Management Blueprint for Business Finances

 

 

Emergency funds are fundamental in personal finances. They’re also fundamental in business finances. They help you build a strong financial foundation. They give you breathing room from living week to week.

 

In business finances, having an emergency fund is often forgotten. Business income is less predictable than employee income. So they’re even more important for businesses.

 

Do you have an emergency fund or buffer of at least 2 months worth of operating expenses?

 

This will help you ride out the ebbs and flows of business.

 

Remember, to succeed in business you must be able to stay in the game long enough to win. And this means having a surplus of cash!

 

Action Step: Work out your monthly business expenses. Create a plan to build up a cash surplus of 2 – 3 months of business expenses.

 

 

If you want to succeed in personal or business finances then you must know what money is coming in and where it’s going.

 

Completing an end of month review will help you understand what money came in vs what money went out. Accounting software can show you this.

 

But you know what’s far more powerful?

 

Sitting down with your bank statement at the end of the month. Reviewing what money flowed in and out of your business.

 

With this information you can then compare your actuals against your planned budget. This is a great exercise to revisit every few months.

 

Action Step: Complete an income vs expenses review for the last month. Compare these figures to your business budget. Or use these figures to help you build a business budget. 

 

 

Effective financial management is the backbone of a successful business.

 

Here are some simple tips to help you ensure your business remains financially fit.

 

 

Are you a business owner who knows how to make money but doesn’t know how to keep it?

 

If this is you then click this link to book a free 15 minute strategy call with me.

 

I look forward to helping you master your business finances. 

 

Have a great day,