(Swipe-And-Deploy Template) How To Set Up The Financial Structure/Processes For Your Freelance Business

Aaron Hoos

Financials seem boring but they’re really not. They’re good practices that pay off in better decisions, more money, less stress, and extra time.

What’s not to love about that?!? Master your finances and you’ll master your business.

Problem is, a lot of people procrastinate on their financials because they think it is complicated and overly-detailed. However, it’s only complicated and overly-detailed if you procrastinate. But if you spend 2-3 minutes a week doing it, you’ll gain HOURS AND HOURS of time and save yourself a ton of frustration. That’s a lesson I wish I learned when I started.

For that reason, I want to help you by handing you the template for the financial structure and processes for your business.

This blog post contains the step-by-step instructions and a swipe-and-deploy financial structure/process template for freelancers who want to set up a good financial process for their businesses. It includes the step-by-step info in this blog post, plus a folder in Google Drive that you can download to duplicate for yourself.

THE BACKGROUND

I was recently working with a photographer who was just getting started. She’d reached out for help and we were talking about branding, marketing, list building, etc. Of course we were also talking about the important administrative side of it too, including financials. I had recommended a couple of books to her and sent her some financial resources but, in retrospect, I overwhelmed her with too much information.

I didn’t realize that at first until I followed up a week or so later and asked her how it was going. She admitted that she’d been procrastinating on the financial side to do other things in her business. Realizing that I’d overwhelmed her, I offered to set it all up for her.

After doing that, I replicated it here for you.

WHO IT’S FOR

I run a bunch of businesses but fundamentally I am a freelancer operating a sole proprietorship in Canada. So, these processes will probably work for other types of businesses and corporate structures, for larger sized businesses, and in other countries. However, this financial structure/process template is built for Canadian sole proprietor freelancers. It’s for new businesses that want to start on a strong foot with their financials, and it’s also for existing businesses that need to get a handle on their financials.

DISCLAIMER

This works for me. It may also work for you. However, you will probably need to make adjustments, depending on what you sell, your corporate structure, additional tax or reporting requirements, the country you operate out of, and many other factors. This is a starting point and you can build on it.

CONTENTS

This swipe-and-deploy financial structure template contains two things: (1) a Google Drive with downloadable templates for you, and (2) instructions that you can follow step-by-step.

(1) THE GOOGLE DRIVE FOLDER

There is a folder in Google Drive that you can view (and download). It’s a folder called “Financials” and inside are 3 things (pictured below)…

  • A Records folder
  • An Income and Expenses spreadsheet
  • An Invoice template

You can view and download this folder structure and upload it into your own Google Drive for a fast start to your own financial structure and processes

(2) STEP-BY-STEP INSTRUCTIONS

Whenever you need to invoice someone, do the following (total duration: 2 minutes):

  1. Right-click and duplicate the invoice template, renaming it the name of your invoice number.*
  2. Customize the contents of the invoice with their name, with their information.
  3. Download it as a PDF and email it to the customer.
  4. Keep it in the main folder.
  5. Put the information into your income/expenses spreadsheet (in the Income tab).

(* Keep your invoice numbers simple. I like using the year, month, and day in reverse order, plus the client’s initials, for very simple filing. For example, if my client is John Smith and I created the invoice on July 18, 2018, then the invoice number would be 20180718js. Nothing fancy, and I can tell at a glance when the invoice was made and who it was for.)

When customers pay, do the following (total duration: 30 seconds):

  1. Update your income/expenses spreadsheet (in the Income tab).
  2. Drag their invoice to the Records folder.*

(* Only drag PAID invoices to the Records folder. That way, anyone who hasn’t paid yet is front and center when you open the Financials folder and you can still see their invoices right away. The goal is to keep this clean by following up on receivables often. Don’t let unpaid invoices pile up!)

Every weekend… Yes, EVERY SINGLE WEEKEND… do the following (total duration: 2 minutes):

  1. Pull out the receipts of stuff you’ve bought that week for your biz. (Oh, pro tip: keep your receipts! Haha!)
  2. Enter the receipts into the income/expenses spreadsheet (in the Expenses tab).

Every year, in January-ish: (total duration: 5 minutes):

  1. Duplicate your income/expenses spreadsheet and rename it for the new year.
  2. Delete last year’s content from the new year’s spreadsheet so you are starting the year with a blank sheet.
  3. Drag the previous year’s spreadsheet into the Records folder.
  4. Go into the Records folder and create a folder for the year (so in January 2019 you will create a folder inside Records for 2018).*
  5. Drag all of 2018’s invoices plus the income/expenses spreadsheet into the 2018 folder.

(* After a few years of business you will end up with a bunch of folders year-by-year for every year you’ve been in business. If it gets to be too much, here’s an optional step: just create another folder in your Records folder called Archives and drag all previous year’s folders into your Archives folder. That way, you minimize the number of folders that you see when you open the Records folder.)

Every year, when doing your taxes*, do the following (total duration: 15 minutes):

  1. Go into the relevant year’s folder inside records and open the income/expenses spreadsheet.
  2. Record your total year’s income as “Business Income” in your tax return.
  3. Record your total year’s expenses (by category) as “Business Expenses” in your tax return.

(* Like everything else in this blog post, these points may differ depending on your corporate structure and the country you are operating in. However, the principles will be generally the same from one country to another.)

SUMMARY

That’s it. All built for you. It’s simple, and if you stay on top of it, it’s fast. Just download the Google Drive folders and put them in your own Google Drive, and bookmark this blog post and come back to it each week (and at the end of the year) to follow the steps to manage your financials.

The Small Business Financial Health Scorecard

Aaron Hoos

Your business might be making money, maybe even a lot of money… but that doesn’t mean it’s healthy. But keep reading because I’m sharing a Small Business Financial Health Scorecard that can instantly give you clarity to help you create a strong, profitable, money-making company that grows without stress.

But let’s start with the bad news…

THE BAD NEWS

The entrepreneurial graveyard is littered with companies that looked like they made money but were forced to shut down. To the uninitiated, it doesn’t make sense—how can a money-making company be forced to close its doors?!?

But those who have started businesses can tell you: a money-making business is not necessarily a healthy one. There are other financial factors, too. For example:

  • Maybe a business makes some money but not enough to survive on.
  • Maybe a business generates some revenue but its high expenses keep it from being profitable.
  • Maybe a business generates makes some money but its receivables are too high; it’s just not collecting enough of that money soon enough.
  • Maybe a business grows too fast and can’t get the money needed to buy the raw materials to assemble more of whatever it sells. (That one is surprisingly common, and, when combined with the receivables problem, it’s a business killer.)
  • Maybe a business generates a healthy income but the owner is so central to the income generation that they just can’t grow. (This was a problem in my business for a while.)

There are other financial reasons, too, but those are big problems. And they can be catastrophic.

So, how do you make sure that your company isn’t just making money but is actually healthy?

I’ve created this Small Business Financial Health Scorecard to review against your business. Use it to identify how healthy your company’s financials are and to get clarity on the ways you can create a financially healthier business.

SCORECARD OVERVIEW

Use the Small Business Financial Health Scorecard every quarter. (You may be tempted to use itmore often than quarterly but I think a quarterly effort gives you time to set goals, take action on those goals, and see results; whereas if you try to do it more frequently you’ll end up with a bunch of goals, too many actions to do, no time to do those actions, and no real results).

There are 7 key financial measures on the scorecard, and they describe how money is made, processed, and used in your business:

  1. Producing
  2. Processed
  3. Paid
  4. Propagating
  5. Predictable
  6. Profitable
  7. Passive

… in that order. (The order is important).

Here’s what they mean:

  1. Producing: Your business is generating revenue.
  2. Processed: Your business has systems in place to send invoices, follow up on receivables, process transactions, pay vendors, and pay taxes.
  3. Paid: Your business is actually collecting the money you are invoicing.
  4. Propagating: Your business grows and the money you are making grows as well.
  5. Predictable: Your business is bringing in money in a consistent way, ideally the same amounts on the same day of the week or month.
  6. Profitable: Your business generates more money than needed for all of the previous points of the scorecard, leaving extra money at the end of each month or quarter.
  7. Passive: Your business generates revenue without regular effort (perhaps best explained as a large, single up-front action that creates ongoing income, versus the need to trade hours for dollars).

SCORING

At the end of each quarter, go through each of these 7 points on the scorecard and score yourself. It will take less than five minutes but you’ll get a very clear picture of the financial health of your company, as well as some smart strategies to improve.

Here’s how to score yourself: For each one of the 7 financial health measures, give yourself a score from 0-4, as follows:

0 = “Nope”. (It does not happen at all.)
1 = “Not really”. (It happens some of the but time less than 50% of the time.)
2 = “Not always”. (It happens some of the time but less than 75% of the time.)
3 = “A lot”. (It happens most of the time but less than 100% of the time.)
4 = “Dialed in! (It happens 100% of the time, every single time, without fail.)

This is the other reason I recommend that you do this every quarter: you might have a really good month and score yourself a 4 on something in the month… but over a quarter it’s harder to sustain best practices so you get a better sense of how things are going on an ongoing basis.

So, let’s look at an example from a fictional company, just to see how the scorecard works:

  1. Producing: The company is generating revenue and the business is working at about 90% capacity, so they’d score a 3
  2. Processed: The company has some systems set up and is able to process most transactions, pay most bills easily, and usually pays taxes on time (but admittedly it’s not perfect), so they’d score a 3
  3. Paid: The company gets paid immediately so they don’t really have any receivable issues at all, so they’d score a 4
  4. Propagating: The company is is not growing so they’d score a 0
  5. Predictable: The company is making money but it comes in completely unpredictably so they’d score a 0
  6. Profitable: The company makes a bit of profit, on some things, but not a lot, so they’d score a 2
  7. Passive: The company’s money is completely tied to the amount of time that the owner spends in the company (and if the owner was away, no revenue would be generated, so they’d score a 0

Part of the value of the scorecard is that it balances simplicity with objectivity. In general, multiple people with the same level of awareness about a company should each be able to complete the scorecard and score roughly the same score, while also still keeping the scoring within a reasonable time-frame.

HOW TO ASSESS THE SCORE

When you score your company quarterly, you’ll assign a score to each one on a scale of 0-4. Ideally you’re aiming to have a company that hits 4 on each point (or, a mix of 3-4, which is probably more likely).

However, many companies won’t hit 3s and 4s across the board. Instead, there will be a variance. The scorecard will not only give you an overall picture of where you are weak and where you are strong, it will also help you to know what to work on first: once you’ve scored yourself, the next step is to find the “first lowest score” and work on that one for the quarter.

Here’s what I mean when I say the “first lowest score”: Starting from the top of the list (Producing) look down the list until you get to the financial measure with the lowest score. In the case of a tie, choose the one that comes earlier in the list. Let’s use the scoring example we’ve been running through so far…

  1. Producing = 3
  2. Processed = 3
  3. Paid = 4
  4. Propagating = 0
  5. Predictable = 0
  6. Profitable = 2
  7. Passive = 0

… then you start at Producing and go down the list, and you noticed that Propagating, Predictable, and Passive each share the lowest score (a score of 0). But, since Propagating is earlier in the list than the other two (it’s the first lowest score in the list) that’s the one you need to work on.

The reason is: you can theoretically work on any of the 7 points on the scorecard, whether a great score or a weak score, whether earlier in the list or later in the list, but the scorecard was put together in a strategic way that can help you build a stronger business by focusing on the earlier ones in the list first and dialing those in before moving on to the later ones, thus helping you build a strong foundation and then build a stronger business on that strong foundation.

HOW TO TAKE ACTION

Once you have found the first lowest score for the past quarter, create a simple action plan with a few achievable goals to improve that area. Here are some ideas:

  1. Producing: You need to work on your marketing and sales to get more customers coming through the door.
  2. Processed: You need to work on your systems and processes to make sure you can accept the money and pay your bills.
  3. Paid: You need to work on your invoicing and receivables to ensure that you are getting paid in a timely fashion.
  4. Propagating: You need to build a strong, self-funding growth plan.
  5. Predictable: You need to build marketing programs, promotions, and products, that bring in income regularly; you should also reach out to past customers especially during slow seasons.
  6. Profitable: Review your income and your expenses; look at how income increases and expense decreases will impact your financials.
  7. Passive: Build or invest in income-producing assets that “decouple” your time from your effort so that you can continue making money even if you are not working in your business.

Work on this action plan for the quarter and then score yourself again.

And again the next quarter.

And again the next quarter.

… and so on.

KEEP GOING

You’ll want to score yourself every quarter from now on, and keep those scorecards.

That way, you’ll create a baseline for the health of your company’s financials but you’ll also see how other changes in your business will impact your score. For example, perhaps you grow dramatically one quarter—that growth is great but could also break some of your invoicing systems and processes, so you may notice a higher score in Propagating and Profitability but a lower score in Processed or Paid. Constantly scoring yourself will keep you aware of the financial health of your business while also giving you a clear and simple strategy to growing a financially healthy company.

Consistent reporting on the financial health of your company with a clear plan on how to grow, all while keeping it simple. That’s the power of the Small Business Financial Health Scorecard.

Financial Fiction Review: ‘The Billion Dollar Sure Thing’ By Paul E. Erdman

Love financial fiction? So do I. And I review them for you!

In this post I’m reviewing…

The Billion Dollar Sure Thing by Paul E. Erdman

The purest form of financial fiction… one of the originals!

The Billion Dollar Sure Thing by Paul E. Erdman

OVERVIEW: The Billion Dollar Sure Thing is THE original financial fiction book! It’s set in the mid-1970’s when America’s currency (which had been decoupled from the gold standard) was facing devaluation. In spite of the decoupling from gold, the US currency was still the financial standard of the day. (That much is true). In the book, the US President is concerned that various European governments are grouping together to take control of the financial markets away from the US dollar, so the President takes a financial gamble to recouple the dollar to the gold standard. Along the way, several different groups from all over the world attempt to profit from the potential financial ripples that this change will create.

REVIEW: This book, written in 1973, is Paul E. Erdman’s first book. Erdman had worked in the financial industry for many years before this book was written, so it’s not surprising that his experience and knowledge comes through. The style is classic 1970’s fiction: I don’t just mean that the telephones require talking to operators or that gold is valued at $100 an ounce… I mean, it’s slightly racist, slightly misogynistic, everyone has a mustache, and there’s always a layer of cold war anti-Russian fear lingering on every page. Just like every other 1970’s work of fiction. If you can get past that, it’s a great financial fiction book. I read this book before — many years ago — and didn’t love it at the time; I just didn’t like the old school feeling of the book, plus I barely understood what was going on. Since then, I’ve spent nearly a decade in the financial industry (or closely associated with it) and have a stockbroker’s license and an MBA… and those things really help. haha

I’ll warn you, this book is actually pretty advanced, financially. Although the author does try to explain everything, there are times when some readers may wonder what’s going on if they’re not experienced with the financial markets. This book covers currency, FOREX, shorting, and futures trading, so it can be heavy reading if you’re not familiar with those things.

Like many books of the age (which always trumpet “soon to be a major motion picture!” across the cover), the book includes plenty of international intrigue. In this book, characters zip back and forth between many of the major financial centers and power centers of the world — Washington, New York, London, Zurich, Moscow, and Beirut — as they make deals with different groups (all of whom end up being an ethnic stereotype, a la 1970’s fiction).

But what makes this book a “pure” financial fiction (in my opinion) is that it’s not about murder (which a lot of financial fiction books include in order to ramp up the conflict in the book) but it’s really just about a lot of people trying to make A LOT of money. Period. So if that’s enough of a conflict to motivate you to read the book then you’ll love this book.

I loved the deep financial aspect of the book and the purity of the financial storyline. And as you can probably infer from my earlier comments, the book does feel dated in many ways… so make sure you read it with an understanding that it’s a slice of fiction written in a very different time. (In some ways that adds some context and authenticity to the book, even if it does get distracting).

FINANCIAL FICTION QUOTIENT: As I’ve said, this book is the granddaddy of financial fiction and the financial quotient is VERY high and fairly advanced.
Here’s a quote from page 210-211 of my copy of the book to give you an example:

“… in the foreign exchange department, the phones had just begun to light up. At eight forty-five twenty traders went into action simultaneously. The Deutsche Bank in Frankfurt was offering $25 million spot. The General Bank agreed to take them at the rate of 3.3015, the absolute floor price for the dollar, a level that had never been reached before. The Deutsche Bank accepted. The Credit Lyonaise in Paris offered $50 million. They did not like the price. They would come back in ten or fifteen minutes. The Banque do Bruxelles wanted to sell $35 million three months forward. The trader consulted Zimmerer. They decided to put a 5 percent discount on the forward dollar: they offered Brussels the corresponding rate of 3.136. They did not even hesitate but accepted immediately. Two minutes later the Bana Nazionale de Lavoro was offered the same rate on $50 million. They also accepted. The traders huddled with Zimmerer. The decided to drop the three months forward rate another full percent. Then came the break.”

That’s just one small example that is fairly easy to follow. There are many others. If you like that kind of thing, as I do, then you’ll enjoy the book.

SUMMARY: Eerdman’s work is financially solid and engaging, although there are times when his experience may outpace the reader’s ability to understand. And although the book is dated, it’s still a great story of big money. If you’re into financial fiction, you should read this book just because it started the whole thing.

Click here to check out Paul E. Erdman’s The Billion Dollar Sure Thing on Amazon.

Find more financial fiction reviews here.

What is due diligence?

Due diligence is the investigation and research that an investor should conduct prior to making an investment to determine whether that investment is right for them. This is true for any kind of investment — from stocks to real estate to businesses.

It’s technically a legal obligation for some investments but I would argue that it’s essential for any investment and, in fact, for any kind of agreement or acquisition at all, whether it’s your home or car, or even whether you’re thinking about entering into a relationship with someone. (In a way, it’s all an investment — your car is an investment of money into your ability to get around; your new relationship is an investment of time and energy into a friendship or romance).

Ultimately, due diligence should answer the question: “Is this investment right for me at this moment?

Good due diligence should first seek to understand that investment (or whatever) as thoroughly as possible. Then, it should consider what the investment means to you and your own goals and timeline.

HOW TO UNDERSTAND THE INVESTMENT

To understand the investment, you need to explore it thoroughly. If it’s a stock, you need to study the stock itself, the industry, and market trends (and so much more. If it’s a real estate investment, you need to study the marketplace, the tenants and property management company, and the costs of maintaining a home in that area (and so much more). Even if it’s a potential romantic partner, you need to know what they’re hoping for a relationship, how they enjoy spending their time, whether the attraction is mutual, etc.

HOW TO CONSIDER WHAT THIS INVESTMENT MEANS TO YOU

An investment, by its very nature, requires you to trade something of value for the potential of a return. That thing of value could be money, time, effort, or many other things. So it’s important that you know what is required of you (and whether you have that to give) and what you can expect. And perhaps most importantly, you need to decide whether the expected return is what you want. Many investors buy into something without really thinking about whether it’s right for them at this moment in time; they end up putting up too much value and receiving returns that they are disappointed with.

DO YOUR DUE DILIGENCE — ALWAYS

Regardless of your investment, it is impossible to perform too much due diligence. However, there comes a point when, practically speaking, you’ve done enough due diligence to move forward. I don’t think people have a problem with the idea of due diligence; rather, I think people do too little due diligence.

(Side note: As a real estate investor, I hear a lot of people say that they’re doing their due diligence but what they’re really doing is being stalled by fear and they are allowing that fear to catch them up into a loop of “analysis paralysis”. Strangely, I only see this in real estate and business investments — never in the stock market.)

Do not leave your due diligence in someone else’s hands. Sure, your financial advisor might help you perform some of your due diligence but don’t think of them as a replacement for due diligence! Do it yourself. Be thorough. Don’t rush.

Check out some of my other writing on due diligence including:

Financial fiction review: ‘Graveyards Of The Banks’ by Nyla Nox

Love financial fiction? So do I. And I review them for you!

In this post I’m reviewing…

Graveyards Of The Banks by Nyla Nox

 

Financial fiction meets Dante’s Inferno meets The Office.

Graveyards-of-the-Banks_Nyla-NoxOVERVIEW: This is the story of a young woman in London who is strapped for cash after her anthropology career falls short, so she gets a job in an investment bank and navigates the complex inner workings of a bureaucratic, multinational hell.

REVIEW: Wow. This was an amazing, moving book. Most of the financial fiction I read is best described as thrillers or mysteries, but not this book. At first I wasn’t sure what to expect… the first couple of pages had a pace and a style that I wasn’t used to. But once I got into the writer’s rhythm, I was hooked. This book is a semi-autobiographical fiction (?) viewed through a poetic filter. And it really struck a chord with me: I have faced the exact same things that the protagonist faced — I worked the life-altering long hours, endured the crazy, condescending assholes, navigated the fiefdoms and bureaucracies and hypocrisy, and scraped by on a pittance while talking to others about millions or billions of dollars. The main character was me; I haven’t connected in a book in a long, long time. I was transported back in time to my early career in the financial world.

FINANCIAL FICTION QUOTIENT: There isn’t a huge amount of finance in this book. The main character works in an investment bank (“The Most Successful Bank In the Universe” as it’s called throughout the book) as a graphic designer who creates complex financial documents for the investment bank’s corporate clients. But what the book lacks in actual financial references, it more than makes up for in its accurate portrayal of the inner workings of a multinational behemoth of a company — including the various competing departments of bankers and designers and IT and training, the levels within each department, and the paint-everything-optimistically CEO writing encouragingly oblivious weekly emails.

SUMMARY: If you have ever worked in a large financial firm you will see yourself and the people you work with in this book. (I’ve worked in 4 large financial firms and this book painted an accurate picture of each one). You know how a show like The Office perfectly captured everyone you work with in an office setting? This book does that with the financial world, while at the same time making you feel like you’re walking through this financial hell with Dante.

GraveyardsOfTheBanksbutton

DISCLAIMER: The author sent me a free copy of the book to review.

Find more financial fiction reviews here.