Entrepreneurs are perpetually stretched thin, so it’s easy to see why some of them throw their business receipts in a folder, or spend cash without checking the budget, or establish a company credit card without a system for documentation and follow-up. If you want to be a successful entrepreneur; however, there’s no room for doing what’s easy, and there’s no future in disorganized finances.
The successful, growth-oriented business owner within any market depends on financial data to stay nimble. Founders who habitually check-in on their financials are more educated in their decision making, and can use a lean planning approach to save money while growing a business.
The financial considerations listed below should be monitored ritualistically by founders hoping to stay lean, and who wish to build healthy financial habits for life:
Sales: The mistake most entrepreneurs make is that they *exclusively* compare contemporary numbers with those of past time periods. Comparing your current figures against where you want to be in the future is an equally crucial exercise. Your objectives should be to not only see how far you've come in the past year, but to track your progress against where you hope to be in the next year.
Expenses: Know where your money goes each month; it’s really that simple. Tracking your expenses (especially those small and seemingly-trivial daily expenses like coffee and bus fare,) serves as an incremental warning system against any serious spending threats––before your budget is blown. If you’ve kept track of your expenses by sorting receipts each month, you’ll be prepared to receive as many tax deductions as possible, and your taxable income will be lower.
Cash Flow: Cash flow refers to the revenue a business generates (and collects) compared to the expenses it pays out over a fixed period of time. A cash-flow statement determines whether there's enough cash to cover upcoming expenses like payroll, and because it shows how much actual cash a company has generated, it’s crucial for business investors. Entrepreneurs who master cash-flow management are the ones can who pay their bills on time, invest in new opportunities, and weather unpredictable misfortunes more easily. In other words, they’re the entrepreneurs who build reputable businesses.
Budgeting: Once you’ve created your first budget, use it! Get a good feel for how your finances are tracking, and map out your spending plan for at least six-months in advance. Budgeting allows entrepreneurs to forecast the months that may be tight, and the months that may generate a surplus; and perhaps most importantly, it enables a meaningful strategy for evening out the highs and lows in financial planning.
Remember: if financial accountability were easy, there wouldn’t be so much money (or fraud) in the financial services sector. Fortunately, you don’t have to master these steps on your own, as there are lots of intelligent people and applications to reinforce your good habits.
Founders have access to a cadre of online tools and apps that allow for a dashboard-style overview of financials that can help you track sales, expenses, debts, cash, and profits all in the same place. Choose the help that works best for you, then be diligent in holding yourself––and your business––accountable.
Sabrina Parsons, CEO, Palo Alto Software
Sabrina Parsons is CEO of Palo Alto Software, the company behind the best-selling business management software, LivePlan. Palo Alto Software is dedicated to serving the needs of entrepreneurs and small-business owners, and offers an entire suite of software and tools to help startups plan, manage, market, and grow their business. Sabrina has overseen the transformation of Palo Alto Software from a desktop software company to a cloud-based software company.