Recently, I gave a presentation on my “Top 10 Ways to Keep Your Business Financially Healthy” and thought I’d turn it into a blog post to share with all of you.
- No co-mingling.
No, this is not an HR issue! This refers to co-mingling personal and business funds. Not only does this make your accountant’s job a nightmare, it opens your personal accounts to inspection if you should have legal or tax issues with your business. The reason many of us have incorporated or started an LLC is precisely to obtain this protection of our personal assets (that corporate veil). But, co-mingling your funds pierces that corporate veil and negates any protection you might have. Don’t do it!
- Get a system.
Having some sort of accounting system is key. You can’t do it all on spreadsheets or in a shoebox. Again – your accountant will hate you, but more importantly it provides you no visibility into your business. There are inexpensive, very easy-to-use systems out there, so there’s no reason not to do this.
- Have a checklist.
Don’t miss a filing date or regularly scheduled task. There are too many things to do on a regular basis to skip this. If you’d like to get our regular advice on the matter, sign up for our newsletter and we’ll be happy to send it to you.
- Look ahead.
Accounting systems can tell you what happened last month, last quarter and last year. While you can make assumptions from that, it’s not nearly as powerful as having leading indicators, a budget and a forecast to steer you right. Read more about why and how here.
- Know your margins.
Make sure you know what it’s costing you to deliver your products and/or services. Include things like credit card charges and shipping. If it’s services, make sure you include all the additional costs beyond your employee’s salaries, such as payroll, taxes and benefits. These costs can be 20-25% or more of payroll. Delivering more services that you’re losing money on is going to put you out of business faster.
- Know who your best customers are.
Most of us have customers that we make the most money from, who appreciate our value the most, and who we enjoy working with the most. If those customers meet all three criteria, that’s fantastic! Knowing what kinds of customers are best for us allows us to look for them and run screaming from those who are not, saving everyone a lot of headaches.
- Invoice promptly.
The easiest way to keep your cash flowing is to invoice promptly and frequently. If you’re working on a long term project, invoice at multiple times during the project (if at all possible). To further assist the project, try coinciding your billing with specific deliverables. As an extra tip, follow up with customers immediately after their due dates if they are late with payment. Simply reach out with a nice phone call to remain “top of mind” when they do pay.
- Know your reporting responsibilities.
We all have annual, quarterly, (and sometime even) monthly reporting responsibilities to the IRS. Additionally, local taxing authorities, states (registration), banks, investors and ourselves may all require additional reporting; make sure you know who needs what. If at all possible, prepare once and deliver to many to save yourself some time and effort. Don’t forget reporting (reviewing) financial reports yourself.
- Have a source of backup funds.
One very common time for a company to experience a cash crunch is when they are growing. You might need funds to purchase raw materials, inventory, or pay people to perform services before you are paid. The time to line up this source of funds is BEFORE you need it. It can take time to get a Line of Credit or Loan approved, and banks are much more likely to lend when you are not desperate. Don’t wait until you are.
- Engage an expert.
- You’re an expert in your business, but may not be an expert in finance, accounting, or taxes. That’s why it pays to engage an expert and have reviews with them periodically (quarterly is a good frequency). Once you have a relationship with them, you can also call them and ask questions during the year to keep yourself on track.
I hope these suggestions were helpful. Any others suggestions on how to be financially healthy? Leave them in the comments field below.