Can you rebuild a transmission? Me neither, but it doesn’t stop me from keeping my car purring smoothly. There are many of things I can do short of pulling the engine block, like fill it with gas, monitor the lights, get the oil changed regularly and get it to the mechanic when the need arises. My lack of mechanical savvy doesn’t hurt me, my car’s still happy.
CAN YOU DISSECT A BALANCE SHEET? EVEN IF YOUR ANSWER IS “NO”, IT SHOULDN’T STOP YOU FROM KEEPING YOUR BUSINESS PURRING ALONG FINANCIALLY
Can you dissect a balance sheet? Even if your answer is “no”, it shouldn’t stop you from keeping your business purring along financially. There’s a vast difference between being intimately familiar with a balance sheet and running your business with financial savvy.
The vast majority of businesses (with the clear exception of bookkeeping services and CPA firms) are not start and run by people with a love for financial data. They’re started because the founder has a love and drive for bringing something new or better to the world. The financial piece is a necessary evil – like seeds in a watermelon. If there was a seedless variety, most business owners would take that option.
But the eat the watermelon and ignore the seeds is to temp an emergency visit to the dentist. To run a business and ignore the financials is to tempt a trip to the bankruptcy attorney – ask me, I know, I was a business bankruptcy attorney in my former life. As someone who has sat across from many business owners and watched the death of their dreams, I know what a losing financial plan looks like. Let’s not do that. Here’s how.
1. Wrap your mind around it
My name is Emily and I’m addicted to sugar. I know exactly how much ice cream is in my freezer at any time and never let the stock fall too low.
The first step to doing something differently is being honest with how you’re handling it now. Where are you on the spectrum? All the way to the right are those who have solid financial information in their business and use it to guide their decision-making. They’re very clear on which products and services are the most advantageous, have a plan for cash flow and only make a move when they’re sure they have strong financial footing. On the far left we see those business owners who keep their financial information here there and yonder, who take a shoebox to their CPA as their filing extension is about to run out and have added new gray hair with worry over cash flow.
If you’re on the left or nudging that way all is not lost. The first step is always to acknowledge the reality and decide you can do better.
Look around, you’re smarter than a large percentage of the population. You’re so dang smart you’ve built a whole entire business out of nothing. You’ve got this. Financial savvy is just one more thing to learn, just like you’ve learned a lot of things to do what you do. And the good news is that it’s not even that hard. My husband has a degree in Physics. When he talks about that stuff, my head swims. Financial savvy is not Physics – and that’s a good thing.
2. Systems, systems, systems
Real estate is all about location, location, location and business is all about systems, systems, systems. We know that from experience in the major areas of our business and it applies to the money piece too.
I can tell you from experience very few business owners walk into a bankruptcy attorney’s office with financial reports. It’s usually a mishmash and a chorus of “about” and “approximately” and “I think”. These are people who don’t know what’s going on in their business financially and it’s come to the point where they need bankruptcy. Yikes.
The question could be asked, is it the chicken or the egg – do business fail because they have poor financial systems or do poor financial systems cause businesses to fail. Either way, how about we avoid being either the chicken or the egg and put those systems in place.
Every business, I don’t care the size, needs 3 things:
1. A way to keep track of the money, i.e., a cloud based accounting system
2. Someone in charge of it – ideally not the business owner because she’s too darn busy guiding the business
3. A system for continually reviewing the financial information to see the story of the business is operating and where the opportunities and pitfalls lie.
If you have these 3 things, you have your finger on the financial pulse of the business. You’ve dramatically increased your likelihood of success because you can fix the dam when you see the cracks instead of waking up soaking wet and wondering why.
Emily Chase Smith, Esq. is an author, speaker and financial business coach based in Southern California. She’s written The Financially Savvy Entrepreneur: Navigating the Money Maze of Running Business and hosts Money Morsels: Small Bites of Wisdom for Entrepreneurs. Emily helps business owners make financially savvy decisions as they start and grow their business.
Emily Chase Smith can be found on Twitter at @EmilyChaseSmith and at EmilyChaseSmith.com.