5 Ways Business Owners Can Be Financially Savvy
If you’re passionate about your business and strive for success, it’s essential to get to grips with your finances and build a stable financial future.
Especially for new businesses or those dipping their toes into the world of finance, it can feel like a daunting task. You may have said to yourself ‘I’m just not a numbers person’ or ‘I don’t understand spreadsheets!’ It’s common to want to focus all your attention on the parts of your business that don’t involve money, like customer service, product development, or marketing.
For ambitious business owners this is a very common frustration, but luckily, it’s easier than ever to become a finance whizz and build up your money confidence.
I have put together five simple steps that will lay the groundwork for you to understand your business’ finances, as well as some simple exercises to get you started. They’re not going to triple your profits overnight (sorry!), but they are vital when it comes to thinking about how your business is progressing financially.
Step 1: Positive Money Mindset
Before anything else it’s essential that you’re in the right money mindset. Instead of thinking of your finances as something that chugs away in the background, you need to prioritise your businesses finances.
When you start to dig down and take the time to learn more about money management, you may have to challenge your preconceived ideas about your business. It will all be worth it to better understand where your business is, and where it needs to be.
Exercise: My Relationship with My Business Finances
Write down 3 positive changes you can make to your financial mindset in your business. Don’t worry about specific numbers – we’ll get into that later.
e.g. “I will be able to understand what products make me the most money” or “I will be able to predict our monthly sales better”
Step 2: Get to Know Your Finances
Once you have established a positive money mindset, it’s time to get practical. This step involves understanding where your business is making or losing money. Gather all the financial information you have for your business, whether it’s receipts, expenses, or bank statements. This may take some time but it’s a very important step towards working out
where you may have gaps in your knowledge or information.
Once you have a good picture of your accounting, start to split your accounts by month or year, depending on what information will be most valuable to you. Can you detect any trends? Which months did you do well? Which did you do less well? Is there overall growth in your business? Which products or services are selling the best?
Exercise: Understanding my Business
Try and figure out any causes you can detect for these trends or changes. Did a strong month coincide with launching a new product? If your business isn’t growing, what’s causing that – a lot of product returns? A lack of repeat business?
These are all vital parts of understanding how your business is doing, so write down anything you think you can detect, and the reasons. Example:
December was a good month
+£500 in sales
Overall slow decline in sales
2% decline YoY
Sales are up but returns are up too
Step 3: Your Financial Focus
Once you have identified a handful of financial trends you can begin to clarify some tangible goals that will be considered with every business decision you make. These goals should be concrete and include specific numbers. I recommend including a date you want to achieve this goal by, so you know when to check and see if your financial planning was successful.
Exercise: Setting Business Goals
Don’t beat yourself up is you don’t achieve these goals, by setting measurable targets you will increase your financial savviness month on month and become more and more conscious of your business’s finances. Example:
Reverse overall decline in sales and add growth by maximising revenue in December using a holiday sale.
+£500 monthly sales
Step 4: Setting Your Course
Now you have a set of clear financial goals, it’s time to start considering how you will get there.
Start thinking about what actions you’re going to take on a daily/weekly/monthly basis. Is growing your business about running more offers to take advantage of seasonal trends? If you’re losing a lot of money to product returns, is it to do with the way you advertise your products? Or is your customer service not proactive enough?
Exercise: My Business Action Plan
Think about the financial impact of these changes, as well. Do you have the budget to spend some money to save some? Would you be better off hiring someone to take care of customer service for you? Example:
Predicted change to business finances
Create better product guides to reduce return rate by ensuring customers know how to use their products
-30% to product returns
Step 5: Review, Rewrite, Repeat
Once you have a good understanding of where your businesses finances are and where you want them to be in the future, it’s essential that you review your finances regularly. I recommend scheduling some time each month to analyse your businesses financial health.
Your goals will likely change over time as your business grows and your financial know-how develops, so make sure to review these often and check your overall objectives are in line with your business.
In time you will see the fruits of your labour when real progress is made. Make sure you take the time to celebrate your wins – really shout about meeting your goals (and let me know if you found these tips helpful!).