For many of my clients, understanding how to position their business for profit can be a challenge largely because of the fiscal responsibility doing so demands. Depending on the way you handled your finances when you had a job, fiscal responsibility (also known as budgeting and forecasting) can be a tough pill to swallow.
At least it was for me. You see, I never balanced a checkbook. I never stopped and thought about whether I could afford something because my career paid me a lot of money – more than enough to avoid having to manage it.
Big mistake. And that carelessness almost cost me my business in the early years. I would buy just to buy without rhyme or reason or fiscal responsibility. I figured if it was there – it was available to be spent.
Today, of course, I’ve learned that I kept myself from experiencing wealth and profit in my business. And sadly, many entrepreneurs and business owners do the same. But it doesn’t have to be that way.
This week on Incredible Factor TV, I’m reviewing a past question from Noahj. Check it out:
“Hi Darnyelle, you mention the dreaded “B word” in a recent video – budgeting. When you mentioned it, I felt that dread as why it is called the dreaded B-word. I can’t even explain why I would have dread for that word but I need to find out why so I can overcome it. Did you ever dread the B-word- budgeting? If so, can you give some examples of something you dreaded and how you overcame it? Can you give some strategies to figuring out why I would have dread for something that I have no real reference for to dread? Last, could you give some strategies of how to overcome things like this that are obviously things vital to a successful business?”
Check out my response to Noahj’s loaded question in this week’s throwback episode (and I’ve added more to my response below):
As I share in the episode, budgeting doesn’t have to be something that you dread. Budgeting gets a bad rap but it is the key to positioning your business to be profitable and to allow you to have money to invest in the things you need to move the needle in your business.
Today, when I am asked about how to set a budget and use it for business growth and viability, I share the following seven tips:
1. Establish your budget mindset. A budget doesn’t have to be a hindrance. A budget can be viewed as a vehicle to ensure that you are building a business that serves the life that you desire. In order to look at money and budgeting this way, you’ll need to deal with your money back story and determine your money personality style. Confession: I am both a spender and a miser and often, the two collide and fight. It’s a paradox actually but having both personalities helps me in my business. I understand the value of investing, but always ensure that investments are going to yield a return so that my miser stays quiet.
2. Stop embezzling from your business. Business ownership is a serious decision and deciding to be a business owner means that you will take fiscal responsibility of that decision. Regardless where you are in the business building process, be sure to set up separate accounts for your business and personal affairs. Fiscal responsibility also means that you will charge more than it costs to perform a service so that you earn a profit on every transaction. Remember you’re a business owner – it’s s much a mindset as it is anything else. If you’re thinking like a CEO and running your business accordingly, you’ll never dread the fact that you are creating wealth and helping your family and community through your fiscal responsibility.
3. Budget for your salary and other expenses. If you are going to do this correctly and stop embezzling, you’ll need to pay yourself a salary every two weeks. You should also get clear about your other expenses and put them into a budget. A budget is nothing more than a guideline of what comes in and goes out of your business. As you budget, try to focus on making sure there are enough deposits so that the withdrawals don’t matter as much. Even in the start up phase, if you have no other income support, you should budget in your salary. Remember, at the end of the day, you quit your job to start your business to get ahead. Make sure that you build a business that serves you.
4. Prioritize for your spending. Being a business owner gives you lots of ideas of what you’d like to invest in to grow your business. Take a step back before you buy and ask yourself this question: is what I’m about to purchase going to help me to achieve my sales and revenue goals for the company this month, this quarter, this year? If the answer is not an unequivocal yes, don’t purchase it. Wait to see if doing so becomes mandatory and you can find a way to tie it’s purchase into the achievement of a core goal.
5. Set aside for tax estimates. As a part of your monthly financial plan and budget, plan to set aside at least 15% of your revenue into the business for your tax estimates. This will save you big time from scrounging for the money when a quarterly payment is due. (Yes, you should be paying your taxes quarterly. It becomes mandatory once your business shows a profit for the previous tax year. If you start this habit now, you’ll be in practice as your business grows.
6. Review your expenditures on a quarterly basis. Have you ever signed up for a free trial and forgot all about it until you start looking at your bank statements and see a recurring fee? Exactly. That is all the more reason why at the end of each quarter you should plan time to go through all of your expenses to make sue that you still need to have that expense, this alone will keep your budget in line but also increase your profitability.
7. Review your budget (forecast and actual) on a monthly basis. You may start doing this yourself and eventually you may bring on a bookkeeper to manage this function for you but having an idea of what you’re planning to bring in and spend out is the key to positioning your business for profit. As you review your budget, strategize to account for the gap between forecast and actuals. You may need to refine your approach, business model or adjust your rates to account for the short fall.
Now I want to hear from you, what’s your two cents?: What would you add to this list to consider as it pertains to building a budget for your business? What have you learned the hard way?
©2016 by Darnyelle A. Jervey. All Rights Reserved. Darnyelle A. Jervey, MBA, The Incredible Factor Business Optimization Coach and Mentor, is the founder of Incredible One Enterprises®, Incredible Factor University® and the Leverage Your Incredible Factor System®, a proven step-by-step program so you experience financial and spiritual abundance in your life because of your business. For more information and a FREE audio CD “7 Critical Mistakes Even Smart Entrepreneurs Must Avoid for Clients, Connection and Cash Flow!” just fill out the form below.
I definitely think you should be very aware of where your money is going. You don’t want to over extend yourself, and you don’t want to be spending money on something that you aren’t using. Great tips, thanks for sharing!