How to get Financial Clarity in your Business
If the idea of knowing the numbers in your business makes your stomach leap, this one’s for you!
I know, I know - numbers!
But those little digits are what will ultimately help you create the life you’re dreaming of, and help you make wise decisions on your way there.
They hold a huge amount of information - and the better informed you are, the quicker you grow, and the more money you create or save in your bank account.
I’m covering how to get financial clarity in your business if you don’t already have it…
…and what to look out for when you have those numbers in front of you!
Let’s dive in! Play the video above, or you'll find the transcript below.
It's really vital that you get to grips with the key figures of what's happening in your business, so you can make wise decisions.
Here's the Video Transcript...
Today I'm talking about why you need Financial Clarity in your Small Business and how to go about getting it if you're feeling a bit lost at the moment.
You might feel a little bit like, ‘Oh, numbers, please don't’ but it's really, really vital that you do get to grips with the numbers, the figures of what's happening in your business, so you can understand what's going on and make wise decisions around this.
Why is this so important?
Here's are 3 reasons why this is important.
- You can Pay Yourself
First, so you can pay yourself. That lovely house you're thinking of, the holidays you'd love to go on, whether it's through a salary or through a mixture of salary and dividends from your business, your business needs to be in good financial health to give you the money you want to go and have the adventures you dream of.
- Health Check your Business
The second reason is so that you can health check your business. You'll understand how healthy it is, how much money you're making from different activities - and to know what's working, and what isn't working.
- Make Wise Decisions
That leads into the third reason is so that you can make wise decisions about your business.
If you discover something isn't working, you can look at tweaking or course adjusting or ditching that thing to focus on other activities that are making money for your business.
How do I get Financial Clarity in my Business?
There are two steps to doing this.
- Get a Bookkeeper
The first is to get a Bookkeeper.
Now, for most small businesses, you may only need someone to do two or three hours a month.
If you've any resistance to paying someone to do your accounts for you, I always bring my clients back to two things.
- The first is how much is it actually going to cost you. You may find it's more cost-effective than you think to get someone to help you.
- The second is, how much money are you currently losing or not making by not having a clear monthly understanding of what's happening in your business?
You might make one small tweak or decision that actually makes a big difference to how much money you either save or make in your business that you wouldn't have been able to do if you weren't keeping on top of those numbers.
Often you'll find you easily make back the investment that you paid for a bookkeeper with the information they give you.
- Accounting Software
The second thing is to have Accounting Software.
You can use software like AutoEntry or Receipt Bank to capture all your receipts as they come in. You either take a photograph of your receipts or forward the email they arrived on to a bespoke email address, and everything goes into the software.
Your bookkeeper then can go into that programme and allocate all your receipts to the correct category. So on an ongoing basis, you just need to get into the habit forwarding your email receipt or taking a photograph of a paper receipt and your bookkeeper will handle the rest.
The receipt holding software will then connect to your main accounting software (something like Xero or Sage), which will record all the incoming and outgoing money in your business.
Again, a bookkeeper will be able to handle that for you.
On a monthly basis, having a clear picture allows you to make decisions about what's working in your business and what you want to invest your money in - and to understand that quickly.
Then when you need to make the really big decisions ('Should I move to premises?', or 'Should I employ a full time member of staff?') or when you're doing your tax or year end accounts, you speak to your accountant who will help and advise you.
How do you know what to look for in these figures?
One of the other questions people often ask me is, ‘What do you do with all this information? How do you know what to look for in the figures?’
There are 3 key things I always look for.
- Income Streams
The first is to look at your Income Streams. Look at where the money is coming into your business, and to see if that marries up to the amount of time and money you're spending on those income streams.
This is something you should do semi-regularly to check on the health of what you do - and whenever you bring in or want to review a new revenue stream.
If you've been in business for a while, look at your comparison to the year before. That'll give you an idea of how you’re doing at that point in time compared to the previous year.
If you're consistently seeing that you're up on what you were doing the previous year, and it's a fairly steady level of increase, you can quite reasonably project the increase forward and estimate your income over the coming months.
- Review your Expenditure
Then the third key thing is to go into each expense category and check them.
Your bookkeeper will allocate your receipts into expense categories (e.g., marketing, or IT systems).
Every month, go into those categories, and ask yourself, ‘Is this still good value for money? Am I still using all the software that I'm paying for? Is there anything you would like to change or to invest in in a different way?’
Once you get into the habit of doing this, it's really easy to spot unusual expenses or anomalies.
It's also easy for you to make decisions about saving - or how you want to invest money to grow too.
What if I still don’t understand?
The key thing about all of this, is that you want to be informed. If you don't understand something, ask those that are helping you.
Ask your bookkeeper, they'll be happy to help you. They're used to working with small business owners who want to delegate their day to day accounts, and they know you'll have questions.
Do it too with your accountant - Ask them the questions around growing your business; 'Can I invest? When will I hit the next tax bracket and what's the impact of this?'
They'll help you get an understanding of what needs to happen for everything to fall into place.
Being informed about all of this gives the power back to you. Then you can seek advice from specialists and make those good decisions.
Before you go!
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