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I f you’re starting a business, Marsha Kelly, small business consultant and owner of Best4Businesses blog, suggests that your grandmother might have had the best advice: “Don’t put all your eggs in one basket.” Nana’s advice can be applied to many life lessons, including business finances.
We collected some of the best, most insightful advice about business finances from women business leaders. Whether you’re a seasoned business owner or just now filing for your LLC , you’ll find a recommendation that will make it easier to manage your business finances.
Before you can manage your business finances, you need to get an understanding of your numbers. And, your business numbers aren’t just those with a dollar sign in front of them.
If you want to operate a successful business, you need to understand the fluctuations of your business. This includes finding out if there’s a seasonality to your business, knowing how many customers you can serve at a time, how much product you need to sell each month to break even, and how many hours you must spend on a project to be profitable, just to name a few.
Knowing your numbers helps you to evaluate whether or not your business is successful and profitable. And, according to Pia Beck, CEO of Curate Well Co. , it has another benefit too. “Getting familiar with aggregating and using data in your business in a variety of ways will make doing the same with your finances a lot less scary!”
Getting to know your numbers makes it easier to understand whether or not your business is profitable and if you’re meeting your business goals. “Collect data from your clients, customers and community and leverage that data to make informed decisions in your business,” suggests Pia.
Once you get to know your business numbers, you can create an annual financial plan. An annual financial plan helps you to plan out what your finances will look like for the year. Your financial plan is also a great starting point for setting business goals.
The best part of a financial plan is that it lets you plan ahead and assess the state of your business as the year progresses. Pia says, “When you have a clear goal and can see where every dollar of that goal is coming from or being spent, it’ll allow you to work proactively to make it happen.”
An annual financial plan isn’t about locking yourself into one mode, but about regularly check in with your goals and readjusting if you’re not aligned with those goals. Maybe the goal needs to change or maybe you need to implement other strategies to accomplish that goal. Your financial plan lets you do that proactively instead of at the end of the year or the end of the quarter.
Operating your own business comes with a number of financial uncertainties. Forecasting and tracking your money can limit those uncertainties. “The #1 reason that small businesses fail is poor cash flow management,” says Marsha of Best4Businesses blog.
When business owners don’t forecast their finances, it can result in disaster. “The most typical unintended consequences are periods of significant financial stress, business and personal debt accumulation, and missed opportunities to do proper tax planning throughout the year,” says Nicole Peterkin, CFP® and founder of Peterkin Financial .
To avoid financial distress, business owners can set up a financial tracking system. “It is so common for small business owners to make financial decisions based on cash in the bank OR based on expected income not received yet without considering the inconsistencies in cash flow, existing fixed expenses committed to and actual business needs.”
Instead of making decisions on bad data, make it a habit to do financial check-ins. Marsha recommends weekly check-ins if you’re looking to grow quickly, but that monthly is fine for more established companies. She also has a special way of checking her own business finances. “Every Friday at 3 p.m. I set aside two hours to make decisions about accounts receivable and accounts payable to maintain adequate cash flow levels. I call my weekly appointment Cash Flow Fridays.”
With a financial tracking system , you can plan your business finances around reality and set your business up for success.
Finances are complicated, and for many people, they can be emotional and intimidating. No matter how financially savvy you are about finances, you’re likely to need a little help along the way when working on your business finances. You might need a financial mentor or business accountant to help you prepare your business taxes.
If you do ask for help with your business finances , be sure you’re asking the right person. According to Pia, you should “find someone to help you who makes you feel comfortable, is willing to explain things to you and can keep you organized without making you anxious.” There’s nothing wrong with asking for help. Just make sure you find the right person for you.
If there’s one financial document that you get friendly with as a business owner, it’s the PnL. A PnL, or profit and loss statement, is a one-stop-shop for a business financial checkup. And, “Chances are, you didn’t learn this in school,” says Pia. “This is one of the most simple and helpful financial documents that will support your overall financial literacy and help you make sound business decisions.”
What do clients have to do with business finances? A lot. Clients pay the bills. To keep the money flowing in, you need happy clients. While some businesses want to market themselves to everyone, your small business will be more successful if you target your ideal client.
According to Pia, working with your ideal client and business success are synonymous. “Managing your business finances is a lot easier if your sales processes are running optimally and money is coming in consistently — and this happens when you know your ideal client and are creating revenue streams they’re bought into (pun intended!).”
Working with your ideal client creates a positive energy cycle that keeps new clients coming in and revenue streams flowing.
As a small business owner, income fluctuations can feel unpredictable and downright discouraging. The ups are great, but the downs can convince you that your business is failing. Understanding the trends of your industry can help you to “lean into what you can control and focus on the information that you do have,” says Nicole. “Learning the trends in your business can lead to more certainty, consistency, confidence and less financial stress, even if actual revenue month to month never gets to the point where it’s consistent.”
Remember nana’s advice? Don’t put all your eggs in one basket. When it comes to managing a small business, diversifying is key. “Diversify your marketing methods , suppliers, locations, customer groups and employees to make sure you are not relying solely on one source for everything,” says Marsha. Diversify how you’re marketing your business, what services you offer and where you source clients from. Diversification means your income won’t be slashed to zero overnight.
Yes, we’re still talking about small business finances. But, your personal finances play a significant role in your financial security and your ability to keep your business afloat in case of an emergency.
When preparing to start your own business, you need to get your personal finances in order first. Nicole recommends that her clients take a no-guilt look at how they spend their money and eliminate unnecessary costs in order to build up a reserve. “There will be a limited amount of money or budget you'll have to stay within and you'll need to make some decisions. Realistically, what categories your money gets spent on are up to you, but your budget for expenses should be less than your estimated income so that you have some kind of cushion to save, [a] buffer for bad months and help [to] accelerate your debt paydown or to allow you to invest at a minimal level while you're building.”
Building a personal emergency fund and savings can help give you the financial security you need to gain the confidence you need to start your own small business. In the beginning of owning a business, you made need to invest in your business or not take a salary for the first few months. Having personal reserves can give you that financial security.
Another strong business finance tip from Pia is to not mix your personal and business finances. This means having a separate bank account, savings account and credit card for your business. Keep all transactions separate. “When you have clean books, you can more accurately understand your business’s drivers and drags, and it’ll make keeping your finances organized so much easier. From the very beginning, I set up a payment schedule for myself and considered my money to be different from the business’s money.” Separating your business and personal money also makes the IRS happy.
These women leaders have some wise words on business finances. If you’re looking to start your own small business, you’ll need to start getting comfortable with your business finances and get familiar with your numbers. Be sure to follow the advice of these smart women leaders.
Page is a freelance content marketing writer with experience writing about small business, the future of the workplace and health. She also operates a weekly email newsletter where she shares advice on living an authentic, intentional life. When not writing, you can find Page traveling, fostering older cats and working as a sexual assault advocate. Read more
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