Life as a child is carefree. You play and run and eat candy… and everything seems right with the world. Then mom and/or dad have “the talk” and suddenly the world seems like a different place. It’s weirder and more complex. You notice things you didn’t notice before. You know things you wish you didn’t know. You can never fully go back to those carefree days.
If you’re running a start-up or relatively new small business, consider this post “the talk”. Your years of playing and running and eating candy are over.
YOU’RE GOING TO EXPERIENCE CHANGES
The transition from child-business to grown-up-business is somewhat awkward and not always a distinct event. Your customers change, your products and service evolve, and your efficiencies improve.
One of the things you can expect to change is your financials. As a new business, you might have kept fairly haphazard books. But now that you’re growing up, your financials need to be cleaner and clearer. (And, I would even go so far as to say that you’ll grow faster and more effectively if you take the first step of putting your financials in order… instead of waiting for your business to grow first before doing something about your financials).
HERE ARE THE BASICS
Want to grow? Start with the basics:
- Implement a good bookkeeping system. I like and use IAC-EZ (disclosure: A friend of mine owns it). I’ve also checked out some other bookkeeping systems that I like, including Clarity Accounting (which recently changed its name to Kashoo).
- Separate out your bank account, credit cards, etc. Even if you’re a sole proprietor (which technically means that your personal and business financials are one and the same, to be filed on a single tax return) you’ll find it to be so much easier to manage your business when your business financials are separated out.
- Get compliant with tax laws!!! Pay your taxes. Keep good records. Expect to be audited and celebrate every year that you aren’t audited. But be ready.
- Get an accountant… a good business accountant; not the guy who also does your grandma’s taxes out of his basement.
NOW TAKE IT TO THE NEXT LEVEL
Once you have the above financial “infrastructure” in place, make sure you practice good financial habits. I define “good financial habits” as accurate, consistently-entered numbers entered in the right places and used to build your business.
“… accurate” will help you to trust your numbers. Grown up businesses rely on their financials to guide their decisions.
“… consistently entered” numbers will mean less time spent entering numbers and more time using those numbers for business growth. There’s also a lower margin of error when you enter your data consistently.
“… entered in the right places”. Get to know the difference between balance sheets, income statements, and cash flow statements. I confess: I resisted for a long time and as soon as I took the time to learn the stuff, it was like a magic key that unlocked a world of business growth.
“… used to build your business.” This part is key. Financials are not just something you keep so that tax time is made easier. Rather, your financials are a tool you can use all year long to accelerate your business performance.
- Your financials are the benchmark you’ll use to conduct ongoing measurement of your business’ health. When your expenses are lower than last year, and your income is higher, that’s a good thing! (Okay, you know that part… but it can get far more complex than that).
- Your financials are the indicators you’ll use to know where exactly to take action. (On that note, here is an excellent article by Ken Kaufman called “20 Indicators Your Financials are Wrong” which I believe is a must-read for every business… and ESPECIALLY for businesses that are making the transition from child to adult). Financials are the easiest way to quickly identify what your next strategic steps should be and what exactly you need to do to be better in that area.
THE VALUE OF FINANCIALS
While clients served or inventory turnover are nice numbers to have, the only numbers that truly matter are found in your financials. Those numbers will determine whether you can open up shop tomorrow and whether you’ll retire early or die trying.
The problem is, financials seem like hard work to navigate. (They’re not, they just seem that way). So new business owners who want to grow their businesses but don’t want the challenge of dealing with numbers will spend a lot of money on many of the latest tools and programs that are offered… when all they really need to do is give some attention to their business’ numbers.
Managing financials is what grown-up businesses do. If you want your business to enter adulthood, are you implementing good financial practices today?
I’m glad we had this little talk.