Want to put a nail in your business’ coffin? Just wing it financially.
Recently, I read an article on Entrepreneur.com that made me spit my morning coffee clear across the room. Did you know that about half of all small businesses have some dangerous financial habits that equate to driving down the highway while blindfolded? The article cited several healthy financial habits of entrepreneurs, but apparently, the lion-share of small business owners aren’t doing all they can do to attain and maintain financial solvency.
When business owners financially “wing it,” they tell themselves lies that can put their business six feet under in no time.
Even the smartest entrepreneurs have some faulty and short-sighted ways of thinking that mess up the financial health of their businesses. Let’s take a look at some of the most common lies solopreneurs tell themselves when thinking about the financial state of their businesses, along with some truths to ponder.
Lie #1: I don’t understand much of the business side of things, but I just need to give my clients great service, and everything will work out.
Truth: You don’t have to get an advanced degree in business to understand the basics, such as cash flow, how to read a Profit and Loss statement, and how to budget.
Lie #2: I don’t need to worry about taxes. My CPA firm will tell me how much I owe.
Truth: One of the biggest threats to the financial health of any business is receiving an unexpected or unanticipated tax bill. Don’t let a misunderstanding of whose responsibility it is to keep track of your tax burden catch you off guard. Your CPA firm has a gazillion other clients to work with, and unless they are doing your bookkeeping or you are having ongoing communication with them about your financials, there is no way for them to know how much you will owe in any given quarter or year. Truth be told, it isn’t their responsibility either--it’s the business owner’s job to have a handle on how much to set aside for taxes. If you need help estimating how much to pay, either quarterly or yearly, depending on your business’ structure and situation, your CPA will be happy to help you figure that out.
Lie #3: I needed to spend money on that (fill in the blank with some expensive questionably necessary piece of equipment, out of state training, or fancy furnishings).
Truth: There are many things you may want to purchase for your business. There are several things you could buy that will help you improve how you work. There are only a couple of things you absolutely cannot do business without. Knowing how to plan purchases in order of essential priority, what kind of return on investment the purchase will give you (either in time saved or money earned,) how to budget for each purchase, and how to stick to your purchasing priority plan is essential.
Lie #4: I can’t afford to pay an attorney. I can just create my legal documents from this canned online program, can’t I?
Truth:. Although it is tempting to use a free or cheap legal form online, when it comes to business documents, you can’t afford not to pay an attorney. Think about the service you provide your clients. Would you recommend your clients try to DIY it? No one wants to think about going to court, but if you find yourself in a legal conflict, do you want the strength of your case to rest on a DIY template? Yes, attorneys are expensive, but not as expensive as going cheap on legal contracts can be.
Lie #5: I know I don’t charge enough for my services, but if I raise my fees, my clients will all leave.
Truth: Amazon.com recently announced they are raising the yearly fee for their Prime membership. Are you bummed? Probably. Are you going to cancel your membership? What? And not get things delivered right to your door at lightning speed? No way! Some people may say that Amazon raised the annual fee arbitrarily, but my guess is they are making the adjustment as one step in their plan to improve their debt and solvency ratios and profit margins. Pretty smart, if you ask me. And I, for one, am grateful Amazon is doing what it needs to do to keep delivering oodles of TP and cat food to my doorstep. If you clients really value what you do for them, they will support your rate increase. If they do not, are they the clients you really want to be serving?
It’s easy to get caught up in the “working in” your business end of things and neglect the “working on” your business tasks, such as understanding cash flow, budgetary allocation, and business planning--especially if this area is far outside your wheelhouse. The worst thing to do is to continue lying to yourself or sticking your head in the sand about the financial health of your business.
But how do you learn all you need to know without taking a business finance course or going broke in the process? One of my favorite resources for basic rule of thumb budgeting for businesses is Mike Michaelowicz’s book Profit First. He has a fabulous worksheet you can use to see what percentage of your revenue should be going to operating expenses, taxes, owner pay, and of course, profit. His website also has tons of great information on how to be a profitable entrepreneur. If you feel like you need more than just a worksheet and a system-in-a-book, start with your local university. Many have free resources for small businesses, including basic information on understanding cash flow and business budgeting. Don’t just stop there, however. As you complete your first budget, allocate money for professional services right away because the best resources are professionals who specialize in financial matters. Professional advice and guidance from CPAs, finance professionals, and business law and tax attorneys are essential for all businesses--even for the solopreneur. Developing a plan to keep your business on track financially gives you the peace of mind you need to focus your energy on doing what you do best--serving your clients.
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This information is being provided to you for educational and informational purposes only. It is being provided to you to educate you about business coaching topics and Brainspotting for Business Blocks and serves as a self-help tool for your own use. It is not personalized business coaching advice, nor is it medical or mental health advice, legal advice, financial advice, or spiritual advice. This information is to be used at your own risk based on your own judgment. For my full Disclaimer, please go to https://www.bethmedina.com/disclaimer.