By Charmaine Huber, Money Coach
Most people who start a business don’t do it for the sole purpose of making money. There are much easier ways to make money than to build a business.
At the risk of sounding too mystical, it’s more often a soul purpose that creates the energy behind entrepreneurial success. People who start businesses are passionate about what they do. But here’s the thing, people who stay in business, the people who thrive and grow, are also practical about what they can and can’t do.
They know that even if they don’t feel comfortable in the world of profits and losses, debts, taxes, budgets and retirement, learning how to take control of their money and having a financial plan in place will make them more successful. And allow them to continue doing what they love.
Here are the top five money challenges you’ll face as a small business owner:
1. No financial goals or clarity
How much money did you really make last year? No, seriously. Do you really know? The scary truth is many business owners don’t. How much money do you need to make to stay in business? How much do you need for advertising? Staffing? Rent? If you don’t know how much money you need to keep the doors open, or how much money you need to pay yourself and to plan for your future, then you’re building your business on shifting sand instead of a solid foundation.
Action steps: Get really clear about what you want to achieve in your business, this is a chance to get excited about possibilities. Write down your goals and then honestly assess how much money you’ll need to earn to achieve them.
2. Goals without a plan
Studies have shown that written goals have a better chance of success than unwritten goals, but that’s only half the equation. We have a better chance of remembering to buy coffee, eggs and cereal if we put them on our grocery list, but we still need to go to the store, do the shopping, pay for the items and bring them home. In other words, a grocery list is not the same as grocery shopping and financial goals are not the same as a financial plan. If you have no idea how to manifest your financial goals then all you have is a list of hopes.
Action steps: Create a financial plan by setting priorities and determining measurable milestones to track your progress. What follows from there is a systematic, step-by-step, process for fulfilling your goals. You will know exactly where you’re going and how you are going to get there.
3. A plan without engagement
Sadly, it’s not uncommon to set goals, make a plan and then stick it in a drawer. This happens for many reasons, it could be that you are too busy with the passion part of your business to check in with your financial progress; or possibly you fear that the financial side isn’t doing as well as you’d hoped and you are avoiding that reality. But the truth is, not working your plan is no better than not having a plan and avoiding a possible problem will just compound it. When you are engaged with your plan you feel in control and calm. When your passion for your business is working in harmony with the financial side, you are ready to seize opportunities or weather storms.
Action steps: Have regularly scheduled check-ins with your financial plan. Make sure to focus on your achievements as well as any challenges, you don’t want to turn these check-ins into something to dread. Remember that your plan is not written in stone, if it no longer excites you figure out why and make changes accordingly. Update your non-financial goals at the same time, thinking of your business as a whole and not in separate compartments will keep you engaged at all levels.
4. Fluctuating income
A big challenge for small business owners is fluctuating income. Sometimes it fluctuates for predictable reasons (you offer a seasonal service) or because of market changes (real estate) or for dozens of other reasons big and small. If you aren’t prepared these fluctuations can impact your ability to meet payroll for you and for any employees you may have.
Action steps: A little strategic planning will allow you to prepare for income dips. Your financial plan gives you the practical information you need to be able to pay yourself a regular, sustainable salary and leave surplus in the company to pay yourself and employees when times are leaner.
5. Lack of organization and systems
Being in business demands a lot of juggling and the ball that gets dropped often is financial. Without systems in place to track invoicing and expenses, without habits and methods for taming the paper (or electronic) monster of receipts, contracts, bank statements, etc. even a well-conceived and executed plan can suffer from disorganization, creating a lot of unnecessary stress. Business loans, overdue taxes, past due receivables, or simply a bookkeeping mess, can take a lot of joy and satisfaction from your business.
Action steps: Schedule time each month to make sure all your paperwork is in order. Have a system to keep track of receipts. Have separate personal and business bank accounts. Set up a tax account and set aside money for taxes regularly (20-30% + any sales taxes collected). Buy accounting software you are comfortable with. If managing this side of the business becomes too overwhelming consider hiring a bookkeeper.
If you would like help building a financial plan that will support your business and your future, contact one of our Money Coaches today.