Let me ask you a question as an entrepreneur.
Do you have your KFP in place?
If you think I’ve made a typo and am referring to a fast food chain, then we have work to do.
I’m talking about your Known Financial Position. In this post we’re going to get you to understand what this is, and then make it dead easy to get a budget in place that works for you.
What’s more I’m going to show you some of my favourite tools to make this financial stuff easy, even for you creative types who hate numbers.
Check your financial position
Your Known Financial Position basically refers to how financially healthy your business is right now. It means you can look at your balance sheet or your profit and loss statement and know, line for line, what it’s telling you.
If you don’t have either of these things, there’s no need to freak out. But you do need to get the basics in place. You have to start tracking your revenue and your expenses.
For online businesses, this is even easier as you have it right there at your fingertips with online banking to check your payments received versus payments made.
You will know how many affiliate sales you made on ClickBank, Commission Junction or the individual programs you’re part of, thanks to their dashboards that track clicks and referrals and payouts.
You can check your e-Junkie digital product sales or your InfusionSoft ecommerce results in a few clicks of your mouse.
Profit is like money for nothing
Profits and cash fix about every problem when it comes to business. If you have more money coming in than going out, you should be making a profit.
If you’re not, or you’re not actually sure, then you may want to check why you’re in business, or whether your current business model is the right one for you.
This financial stuff is pretty easy when you look at the basics, so if you think you’re no good with numbers, then you need to get over it.
This is your money we are talking about here, so you need to get to grips with it.
Take a quick check right now and ask yourself if you like what you see. If you don’t, you can change it. Change it to what you may ask?
Well that’s what budgeting is all about. Change it to what you want it to be.
What do you want to spend money on, and how much would you have to sell to cover all your expenses and generate the kind of profit that would make it worth your while?
That’s all budgeting is. All you need to do is compare your actual budget to the one you’ve allowed for, to give you an idea of what’s working and what’s not.
If you don’t keep score, you won’t know what shape you’re in, and that is just not an option.
Quit wasting time. You have an opportunity to create the life you want starting this year, right now. It’s time for the “B” word. “B” stands for goal setting. “B” stands for planning. “B” stands for…BUDGET.
And it’s time for you to get over your “B” word problem. You know you are supposed to put a budget together, right? Have you? Have you lined up this upcoming year in numbers and dollars?
If you don’t set goals and measure your progress, your business won’t get any better. It will get worse!
Tips for putting together your business budget
1. Getting started
Stop whining about budgeting. Stop claiming you can’t do it. Stop claiming you don’t get it. Budgeting is your best guess at what you can do for sales and expenses for a future period of time. That’s all.
Don’t worry about doing it just right. You can’t do it 100% right, meaning you will never guess exactly what you will have in sales and expenses. You can’t do it wrong. Any swing at doing a budget is a positive move.
Realize your power.You are incredibly powerful, so much more so than you realize. Writing your goals and crafting your budget actually sets your goals into motion. You have everything to gain and nothing to lose by budgeting. So, let’s go!
2. Set up your budget template
Do you provide different types of products and services? Create a budget for each item.
I set up a simple spreadsheet at the start of the year where I can see what revenue is coming in, and what my expenses are.
Revenue:
I have three columns for each month’s sales: Stretch goal > Target Goal > Actual
There are two ways to approach the revenue line of your budget:
- Set a sales goal… and work from there.
- Fill in all your projected costs, and then see how much revenue you will have to bring in to cover costs and leave your desired profit.
I forecast mine out based on when I know I’m launching a new product, focusing on gaining more coaching clients, or promoting an affiliate.
Sometimes I guess at what I’d like to make, other times I can go on past experience when I’m punching in these numbers.
Then I know what a great month looks like revenue wise, and what I absolutely must hit to continue having a six-figure business.
Expenses:
Below that I track my expenses. With an online business, these are kept pretty consistent – there’s my monthly InfusionSoft charge – my sales, marketing and ecommerce platform.
Then there’s Libsyn for podcast hosting, Hostgator hosting services for my website, and my Hootsuite Pro account.
I also account for my team members’ monthly salaries – these are on contracts and remain fairly similar each month.
The total at the bottom is the difference between my revenue (income) and expenses (costs) and it should be very positive!
3. Find a budget buddy
Doing your budget with someone else is a great idea, especially if you’re still making that excuse that you hate numbers. Two sets of eyes will catch more math errors, and being able to pick their brain will help you think out your assumptions.
Who should be your Budget Buddy? Another business owner is good. You can also work with one of your employees on the budget.
Don’t be afraid to share your financial information with a key employee. Their financial literacy makes them more valuable to your organization (hat tip to Ellen Rohr from Bare Bones Biz for this advice).
4. Use financial tools to save time
I love my tools, and for tracking your budget and managing your finances, there’s an ever increasing option of beautiful interfaces to get you excited about this stuff.
You also know I like to keep it simple and just recommend a few. So here are my picks:
Mint.com
This is the online budget tool that started a revolution, although it’s only available for North Americans. You can link your financial accounts — savings, checking, credit cards — to Mint. Your information is automatically updated as it appears in your accounts that you link it too – it’s like a central dashboard to check your personal financial health with cool graphs and visuals. You can set spending goals too and track your progress for savings and retirement.
Gnu Cash
Gnu Cash is free accounting software that works on your Mac or PC operating system, and it is also compatible with Linux. Based on true accounting practices, it’s designed to allow you to receive accurate financial reports. Gnu allows you to track investments, savings, checking and other accounts. It’s a great way to get a comprehensive financial picture, as well help you keep track of your current progress.
InDinero
This Internet-based fiscal modeling tool is like Mint for business. InDinero pulls in information from various credit-card and bank accounts. It generates a comprehensive view of your business finances, and puts it up on one central dashboard, complete with pretty visuals. The budget tool does a good job of automatically categorizing your expenses using information it pulls in from your accounts. For more complex tasks, inDinero data can be imported into other programs such as Quickbooks or Excel. It’s free for just 50 transactions every 30 days or $29.95 per month to track 500 transactions.
Xero
This accounting software solution is great for DIYers and powerful enough for accountants. Xero hasa great user interface, a really robust set of features and beautiful reports. It does almost everything an accounting tool should including tracking money coming in (AR), money going out (AP), payroll, expensing, and the ability to create budgets. You can also share the books with your accountant and your team. Plus there’s a cool mobile app too. It’s the same cost as InDinero per month.
Summing it all up
It really can be a liberating exercise to take control of your financial picture. If you always bring it back to the vision you have for your business and life, it will make it even more attractive.
You can choose to go the simple method of using the Excel spreadsheet to track your revenue and expenses, so long as you do this regularly, like on a weekly basis.
Or check out the tools I recommended above to see which of them suits your preferences and works with your banks and credit cards to save you time and money from manual methods of budgeting.
Whatever path you choose, know that you must be in control of your money in order to build a profitable business and a lifestyle that makes you happy and fulfilled.
Start now by using these tips and tools, and I promise you that you’ll profit in more ways than you can imagine.
Note: I am blogging on behalf of Visa Business and receivedcompensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa’s. Visit https://facebook.com/visasmallbiz to take a look at the reinvented Facebook Page: Well Sourced by Visa Business. The Page serves as a space where small business owners can access educational resources, read success stories from other business owners, engage with peers, and find tips to help businesses run more efficiently. Every month, the Page will introduce a new theme that will focus on a topic important to a small business owner’s success. For additional tips and advice, and information about Visa’s small business solutions, follow @VisaSmallBiz and visit https://visa.com/business.