Money Matters

How to manage your finances like a boss

We often see businesses who are absolutely bossing their business operation or their sales and marketing. But when it comes to the finances, it’s the finances that are the most tyrannical of bosses.

It’s true that of all of the different aspects of running a small business, financial management is the one that causes the most stress.

For example, you need to understand the accounting terms. Then you must be clear on what the numbers are telling you.

And there’s the requirement to make sure you have everything ready to calculate the tax you owe and the tax you have to pay – and have the funds to cover the payment.

The good news is none of this has to be hard or complicated. You can take things one step at a time and there is so much support out there to help you, including in this article.

We recently hosted a panel discussion with two experts on the subject of how you can manage your finances like a boss. Carl Reader is a small business expert, author and speaker. Sam Mitcham is the founder of SJCM Accountancy and she’s a small business accountant expert and adviser.

Off the back of that discussion, we’ve created this article to share some of the insights that arose plus some top tips to help you manage your finances like a boss.

Here’s what it covers:

What does managing your finances like a boss really mean?

Meet Adele and see how she bossed her finances

5 steps to managing your finances like a boss

To manage your finances like a boss, it means you have to do three things…

1. Be proactive

Knowing what you need to know and when you need to know it to ensure you have the right data and numbers to hand when you make business decisions.

2. Be in control

Make the numbers work for you. This means having numbers that you understand, are in the format you need and give you a view on the key areas of the business that you need to monitor.

3. Be responsible

It’s your business, your data and your numbers. Therefore, it’s up to you to make sure the data is collected accurately and put in the right place at the right time.

Doing this day by day can have a massive positive impact on your business. It’s the small steps which are under your control done consistently have the biggest impact.

Consider this example.

Adele, a small online retailer, decides to boss her finances. Before managing her finances like a boss, the business processed 10,000 customer orders per year and generated £150,000 of sales and a net profit of £5,000 after paying tax.

She starts to be proactive and understands that there is an opportunity to sell more to her existing customer base rather than constantly investing in marketing to prospective customers.

She brings to together all of the data she has on her customers such as:

  • Sales per customer
  • What products the customers buy
  • How much profit she makes on each product and order.

She takes control by reviewing all of the data she has with her accountant.

They discuss the gaps that she needs to fill in particular about how to monitor order frequency and order size per customer more efficiently, rather than having to manually calculate it via a spreadsheet.

Adele realises she needs to increase some prices as process from suppliers have increased without her know-how.

She takes responsibility by working out the most realistic and efficient way to get the data from the various apps and platforms she uses and get them into the accounting system.

She uses an app to scan and upload supplier invoices she receives in the post and via pdf so that they don’t just sit in a box or in her email inbox.

Prior to becoming ‘The Boss’, Adele had sales of £150k and made a net profit of £5k. But once she actually took control of the finances and made changes of no greater than 5%, she increased net profit to an incredible £28k an improvement of 468%.

While it might feel really intimidating at the moment, the key is to start small and do it consistently over time. Little wins will compound into bigger wins over time, after all.

Here are the first simple steps for you to take.

1. Start with survival: What do you need to survive?

This needs to be an accurate number based on what you actually spend rather than what you think you spend (and it shouldn’t involve taking money out of the business when you think you need it).

Running a business is a marathon not a sprint so it needs to be realistic and sustainable.

At the very least your business needs to be able to sell enough to pay you this income after all of the costs and taxes have been taken paid.

2. Divide and conquer: Keep the numbers separate

Keep your personal and business transactions separate – this makes managing the finances so much easier.

Open a separate business bank account for all business transactions and connect it to your accounting software.

This will result in faster, more accurate data flowing automatically into the right place within your accounting software, giving you an up-to-date view whenever you need it.

Remember, business funds are part of the business not part of your personal funds.

3. Locate the controls

The ‘controls’ are the numbers that give you an accurate picture of what is happening in the business. Each business is different and the controls can vary depending on the type of business.

However, an easy starting point involves looking for the biggest and most important numbers in your business.

Here are five to get you started:

  • Sales: The total value of sales you have made. Increase your control by understanding where the sales come from and how can you grow them.
  • Cost of sales: Costs that increase when you sell more and decrease when you sell less. Increase your control by understanding what you can do to keep them as low as possible. And watch for positive and negative movements when you take action.
  • Overheads: The fixed costs that you pay each month regardless of the sales you do. Take control in two ways. Firstly, only incur overheads that are absolutely critical. Secondly, work to get the get the best deal possible whenever they can be reviewed, then monitor regularly.
  • Gross profit: Sales minus your cost of sales. Taking control of your cost of sales helps you maximise your gross profit. You can further increase your control by regularly reviewing the prices you charge customers and avoiding offering discounts. When you discount, you are simply giving your hard-earned gross profit away. However, if you need to (or decide to) discount, you should be confident that you’ll ultimately generate the required return.

Finally, having increased the control you have over the numbers above you will have maximised the final control: net profit.

Net profit: Gross profit minus overheads. The number after tax must at least equal what you need to survive. Keeping overheads as low as possible ensures more of the profit is available to you.

You can increase net profit after tax by ensuring you are recording every transaction in the business that reduces your taxable income. If you don’t, you’re simply giving your hard-earned profit to the taxman.

4. Automate the process

Think of technology as your low paid, highly motivated and competent assistant who can manage your low-value, repetitive tasks.

All you have to do is to provide some instructions and set it away – this will allow you to focus on the work only you can do.

Here are five areas to get you started:

Purchases: Use a mobile app to capture receipts and purchase invoices as you get them and automatically upload them into your accounting software.

This makes keeping on top of your costs much easier – and ensures you have all of the information required at tax return time.

Invoicing: Use your accounting solution to make invoicing much more efficient. Set up products and services to reduce the amount of typing for each invoice.

Use recurring invoices for those invoices you send every month to make life even easier.

Banking: Connect your bank account so customer payments can be reconciled automatically – and do the same when you pay a purchase invoice.

Products/Services: Create reorder levels and reorder quantities within your accounting solution so that when stock reaches a certain level, you know to create an order with your supplier.

If you run a service business, create standard service descriptions for your most popular services so you can simply enter a reference to get the requires service for a quote, estimate or invoice.

Your accounting solution will also allow you to track which of your services are most popular.

Reporting: Use reports and dashboards to constantly monitor the financial health of your business. Start with these:

  • Profitability: Profit and Loss Report – This will enable you to see how the profit is performing and enable you to view cost of sales, gross profit, overheads and new profit.
  • Cash: Balance Sheet – This shows you where all of your cash is currently located. Essentially what is tied up in stock, what is owed to you by customers and what you owe.
  • What you are owed: Aged Debtors – This shows who owes you and how long payments have been outstanding – and tells you exactly who you need to chase for payment.
  • What you owe: Aged Creditors – This reveals which of your creditors are overdue and who is chasing you for payment. Use this to make sure you’re keeping your (most important) suppliers happy.

Dashboard views of the data are available in mobile apps – this is perfect for retaining the feeling of control when you are on the move.

5. Review what you have

Finally, review everything that you have to ensure you understand it all. There three key areas to cover. In your review:

Know the numbers: Do you have the data to create the numbers to provide accurate view of the business?

Understand the numbers: Do you understand what the numbers are telling you and the actions that are required?

Validate the numbers: Are the numbers consistent with your goals and do they support you to move from where you are today to where you want to be?

An accountant or bookkeeper will make the process much easier and gives you a knowledgeable ally to support you in your new role as The Boss.

Final thoughts

Hopefully this gives you a starting point as finding what works for you and your business and making changes when it doesn’t is a process of evolution.

While tackling your finances may be initially daunting, taking the time to get them working for you is well worth the effort.

Managing your finances like a boss will mean you develop a more successful business, achieve your business goals and reduce stresses linked with running a company – while increasing the satisfaction of truly being ‘The Boss’.

7 ways to take control of your business

Want to know how you can boss it at your business? Read this guide for top tips to help you master your business admin and truly take control.

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