Operating by the Books; It Does a Business Good

Throughout 2008, we had an interesting, uh, adventure in hiring, before we found our infrastructure queen, Kate Williams. Kate is blogging the Insider View, as previously self-employed and now working with us. I expect that she’s going to embarrass the crumb out of me. The intention, however, is to be as transparent in our business as possible, so you can learn what really works (and what really doesn’t.)

How’s your P & L doing? Got Balance Sheet?

Finance, in that big F sort of way, has not screamed for attention at its current feverish pitch any other time in my life, which is almost half a century long, and probably not in yours either. Which means it’s safe to say, our little personal Fs are bawling like babies, in that dysfunctional family solidarity sort of way.

Creating concrete systems for tracking each aspect of Heart of Business’s financial flow is on the top of my infrastructure-renovation list. But even more importantly, once that’s in place, is to become intimately familiar with how to take the information that those systems generate and begin making fully accountable, measured, and strategic business and marketing decisions.

I talked with Jessica Reagan Salzman briefly today, inspired owner of Behind the Scenes Bookkeeping services, and she stuffed our current entrepreneurial reality in a nutshell. “I’ve always believed that we need to run our businesses by the books, but now more than ever, those who’ve been marginally successful managing there money from the hip, need to rely on their financial books for guidance.” As I listened, my head was nodding up and down like a back seat bobble-head.

A Welcome Step Toward Business Transparency

Heart of Business has been amazingly successful for the last eight years with minimal attention to its numbers. Although tracking finances can be tedious and even anxiety provoking, not doing it ultimately limit success, and particularly growth. Someone on this team has to get intimately involved with interpreting the numbers at least monthly. First and last, whoever is involved in major decision making has to find support and rationale for them financially.

When I imagine the business’s financial numbers at our fingertips helping direct us during decision-making meetings and project-building efforts, a peacefulness falls over me. In my mind, Heart of Business’s operations would find a peacefulness never before felt in its life. Once financial operations become central, all the other aspects of the business–creative product generation, marketing, teaching, etc.–can settle into a productive rhythm based on responsiveness rather than reactive crises management.

What are those Financial Pieces Needing Places?

In businesses I’ve started and run in the past from a massage business, to a naturopathic clinic, to an editing business, I’ve always done the basic bookkeeping. I started on ledger paper many years ago creating the crudest line item categories for payments and a list of the clients providing revenue. I made myself learn Quickbooks, including managing an inventory and payroll taxes the next time around. I just about went bald doing it, but I took great comfort in balancing the books and knowing exactly how much our inventory was worth on any given day. In that business, I was fortunate to have an office right next door to our accountant. If you’re wondering, I learned everything I know about bookkeeping on the job, out of desperation.

1. You need a bookkeeping system beyond bank statements and credit card statements. What ever your level of sophistication, you need to understand and record money coming in and money going out. That may be as simple as hiring a bookkeeper and doing exactly what they tell you to do with your statements and check register, which is what Mark’s done for a while. Even if you do that, you’re still responsible for understanding how to read monthly reports and make decisions from them, which Mark has not really ever done, yet.

2. Understand what reports matter and run them monthly. Besides the traditional profit and loss statement and balance sheets, you need to consider what other reports are important to understanding your business’s financial health. If you have products, it’s helpful to know how many of what have sold. Is it up or down from last year, last month? You may want to track revenue based on various marketing campaigns to know if one works better then another. If you have an ezine subscription set up, is there a correlation to increased subscriptions, to purchases? There are many ways to measure your financial progress, you just need to decide what’s most appropriate for your goals and make it a priority.

3. With the real numbers in mind, you need to develop a yearly budget. “A budget, yuck! I’m my own boss now, I don’t need to deal with that much detail . . .” After being responsible for creating a $400K budget for a department at a medical school that included the college’s bookstore, I’m convinced that not having one is as detrimental as having a rudderless sailboat. You can grow and experiment, guess and risk, with money you see in your accounts, but you can’t plan. Eventually, you risk losing everything you’ve built. When you spend money over and over while chasing one good idea after another, suddenly there isn’t money for the rent, or your employee, or . . . and you’re caught with your belt buckle grazing your ankles.

4. To develop a budget, you need to have a working yearly marketing plan. Starting budget numbers come from comparing last year’s costs and revenues and projecting how you think you’ll do this year coupled with new marketing ideas, creative projects, and expected revenue increases. You also need to consider upcoming expenses you know you’ll have. That could be for things like seminars to hone your skills or office equipment upgrades. Remember, once you have a budget then you can manipulate the money as the year plays out. You can move sums of money from one designated area to another as you adjust plans throughout the year.

What If Finance Tracking is Your Weak Area?

If finances are kin to the devil for you, hire someone you can trust to interpret your finances and commit to meeting with them monthly and making enough effort to be able to understand their interpretations. If you don’t have the money to hire someone, find a fellow entrepreneur who enjoys finances and who will hold your hand as you face your boogeyman.

I know dealing with all the details required to achieve fiscal responsibility may feel restrictive and time consuming when there are so many other things to take care of like serving your clients and being creative. But once they’re running smoothly in a sturdy system, you’ll feel freer than you’ve ever felt in your business. It will show you gratitude with more stable revenue that grows at the pace and to the extent you want it to.

In the End

It’s about continual tracking, decision-making, implementation, and assessment. The more conscious we are, the more successful we’ll be. The more useful the systems put in place to hold the information and energy flow, the more likely we’ll all be able to stir clear of a crises management routine. Crises always happen, but the blows are so much softer when systems are in place to absorb the shock.

Operate by your books. It does a business good!