You are opening your first business, or maybe starting to
hit your stride after a few years of hard ramp-up work. You are excited and
motivated by the work your business does and the way it will contribute to
society. You know everything you need to attract customers and provide an outstanding
product or service. But if you’re like most business owners, this may be the
first time you will have to budget or track your company’s financial progress.
Most of us receive little or no formal training in how to
develop a budget or forecast, track expenses, or even read and understand helpful
financial reports. In spite of the expertise we have in our field, we are often
uninterested and unaware of how to go about managing the critical financial
piece of our business. While “trial and error” can be an effective way to learn
about your bookkeeping system, or budgeting, or reading financial reports, a
critical error at this junction of your business could be disastrous.
Here are a few lessons learned in my work that I think most small
business owners could benefit from:
- Put in some time to learn how to get it right. There is no better time to ask “stupid” questions than when you are brand new to something and have never done it. Better to ask and spend the time upfront learning, rather than wait until someone has to point out your mistakes. But even if you aren’t“new” to your business anymore, there is no time like the present to improve in this area. Request time from your accountant or coach to help you understand the critical numbers and report. If they can’t help you, find one who can. Learn the key processes of your bookkeeping system.
- Take a Finance for Non-financial Managers course. Check with you local university or tech school, as they commonly offer such courses, perhaps in a 1-3 day non-credit format. During or after the course, take the time to review your company’s annual report and understand the various financial ratios and reports.
- Track your expenses monthly and adjust as you go. Don’t wait until year-end to hand a messy set of financial data to your accountant to straighten it out. Work on getting it right all year long, and you’ll actually save money on your accounting fees, and can utilize your accountant to help you plan and strategize on how to improve your business.
- Get your team involved. Share your key performance indicators and budget with your team, perhaps even getting them involved in setting up the forecast. Involving your team and helping them understand the budgeting process creates a sense of shared ownership, and encourages your employees to find creative ways to manage expenses, thus taking some of the burden off of you.
- Test the logic of your strategies. Don’t just take last year’s actuals and add 10% to the next year’s forecast. Start with developing a strategy and goals, then determine the resources required to achieve those goals. A proforma, or “what-if” budget is a great way to test the logic of adding new products, additional people, facilities, loans, and more.
Now, go use your numbers to help make your business a success!
