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Financial Chaos to Clarity - 1 Hour a Week for 13 Weeks π
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Just. Start. Doing. It. That's the best advice for any small business owner who feels like they don't know what's going on in the finances of their business. 𫨠When scaling a business, an owner usually obsesses on the following in this order:
While new sales, quality, and hiring will get you a nice paying self-employed living - good accounting will always hold you back from breaking through and building a business. And good accounting will help you scale through self-employment to business ownership faster. β© The trick is setting aside one hour a week to focus on one area that will compound into a habit of looking at, analyzing, and understanding what your business is telling you. Here is the step-by-step we give to our Platinum Client Accounting Service clients looking to transform their financial understanding. (We do it with them, but I've edited for DIY.) Week 1: Read Your Financials πWe start by stacking an easy win. Just pull these two financial statements for the latest month and look at them.
Don't get lost digging in them - just look at them and read each line. Week 2: Balance Sheet Clean Up πΏRun the balance sheet report again. It's time to understand it more. You know what cash and debt are - but take more time to understand what each other balance sheet account represents. For any large number, take notes on questions and run them by your accountant.
Don't know what an account is? Google it and put it on the list to ask. You will end this week with questions - that's good. π We want these questions to compound - and many times the answers are related. Sit with your accountant just to understand the answers - but don't stop tracking them. Week 3: Income Statement Clean Up π§ΌRun the income statement (P&L) report again. This is a valuable tool and should work FOR you. Here's how:
This week is less about digging in and more about making the report work for you. Week 4: Internal Controls Clean Up π°Run three reports this week:
Again, look at them. Read them. Don't spend a day on them - we're going to compounding of habits. Week 5: Close Process and Checklist πReflect back on the last four weeks. How did you get the reports? What questions did you have on each one? What errors or issues did you note as needing to get fixed. Keep this list running as your "close review checklist" - a Google Doc or something else you can locate and edit on your phone works best. This process will become your roadmap for staying current with your financials. Week 6: Tax Structure and Elections πGather the basics of how your business tax structure works and how different entity types work together if you have multiple companies. Are you a S-Corp? Partnership? C-Corp? Sole-proprietor? (Or if you're an LLC, how are you taxed by the IRS - it's one of those four). Write down why you're that entity. It's okay if the answer is "my CPA told me to" or "that's how it's always been." πββοΈ Write down what income streams are in each entity (name and type of entity) and what assets and liabilities are in each entity (name and type of entity). These will be questions you ask to your tax professional at your next meeting:
Week 7: SALT Tax Compliance πΊοΈUnderstand all your federal, state, local taxes you file - write them down. IRS, State, Sales Tax, Excise Tax, Franchise Tax, Payroll Tax. Set up a calendar with all your federal, state, and local tax deadlines so nothing falls through the cracks. Do not rely on your CPA to do this - own this. ποΈ These smaller types of tax can often be a huge disaster when it's time to sell your business - so don't over-delegate these. Week 8: Tax Timing β±οΈHere, we care about major income or expense events. βΌοΈ Will you be selling assets for a liquidity event? What sort of impacts will that have on the business? Will you be spending money or taking a loan for assets? When do you need that depreciation? Immediately or spread out? Will you sell the business? To whom? Will they buy the assets or stock? Again, this all goes on the "ask my tax pro" list. But you need to bring these inputs to them for them to consider and propose ideas. Week 9: Tax Estimates βMake a calendar reminder for each Federal and State PERSONAL tax due date (April 15, June 15, September 15, January 15). If you don't know how much to pay, take the amount of your 2024 (or 2023) TOTAL TAX DUE, multiply by 110% and subtract any W2 WITHHOLDING this year. This is how much extra you need to pay in each quarter. Divide this by 4 and multiply by how many ever quarters have passed. If your income has gone down from the last year - decrease it by about that amount. No, this is not perfect and may end up with penalties - but it's better than nothing. β οΈ Ideally - pay your tax professional for a full estimate each quarter. But if they ignore you, still get something in. Week 10: Set Baselines πββοΈNow, we look forward. Pull together the last 12 months of income statements to understand your business patterns. Look at them across the months. π Separate your costs into fixed expenses that stay roughly the same each month and variable costs that change with your sales or activity levels. This breakdown will become the foundation for building realistic projections going forward. Week 11: Identify Outliers πReview these 12 months of income statements to find items that shouldn't be included in a normal budget going forward. Look for one-time events like legal settlements, unusual projects, or non-recurring expenses that might skew your projections. Removing these outliers will give you a cleaner picture of your normal business performance to use for planning. Week 12: Benchmark πResearch what's normal in your industry by looking at resources like IBISWorld reports and public company filings. Don't be afraid of AI research tools here but confirm sources of information. π¨βπ» You want to know what companies larger, same size, and smaller size are doing on:
Where are you a negative outlier? Where are you performing better - why? This helps you identify improvements you want to layer in your budget you will make next week. Week 13: Project Forward 1 Year with Cash Impact βΆοΈCreate a 12-month forward-looking budget starting with no growth assumptions. What would next year look like if you didn't grow? What months would be busier or more expensive? Adjust those months in the budget. Then layer in realistic growth projections. What will happen to cash as you grow? What's the lead time of investment to return? Will you need financing or a capital call? We will use this projection to measure against, so save it somewhere safe. Keep It Up! πNow - we've been consistent for 13 weeks. We build on this energy: 1st Week of Every Month -
1st Week of Every Quarter -
1st Week of Every Year -
β Okay, some of those weeks will take more than an hour - but you have to trick yourself. Create the calendar event in your schedule and commit to it. Commitment to this process will transform your financial confidence in your business and give you clarity you need to grow a real business. β π«‘ π₯ Hottest Finance Posts This Week π₯
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