A few years ago my money situation was a disaster- and to be honest- disaster is a nice way to put it. The real talk way to put it is this: A few years ago, my money situation was a shit show.
Here’s what it looked like: my bookkeeping was def not done, I was overdrawing my bank account, had a mountain of credit card debt, no savings, and was freaking out about paying my bills every month.
So what did it take for me to finally get my biz finances together?
First, a good hard look at my relationship with money and, second, a good hard look at everything I was doing wrong with my business finances.
Since I was a financial consultant and bookkeeper it was pretty easy for me to identify where I was screwing up. Once I acknowledged that (and let’s be honest, gave myself a stern talkin’ to) I was ready to make small intentional changes that would completely revamp my biz finances.
And that’s exactly what I did.
Here’s the thing, though, because of my job, I had experience on my side. You may not have the same experience, which is why I’m going to break down the 6 reasons your finances are a hot mess:
You don’t look at your bank account because you’re afraid of what you’ll see
This is the head in the sand approach to your finances- ignore everything in the hope that you won’t have to face what you’re afraid of. This tactic is especially dangerous when it comes to money because not taking care of your money can cost you actual money and have long term consequences.
The simple of act of checking your bank account regularly helps you stay on top of your spending and nip any bad spending habits in the bud. Instead of realizing on the 20th that you’ve spent all your income for the month, you track everything in real time.
You’ll also have a firm grasp on where you’re spending your money. I once had a client (who never looked at her bank account) who bought the same plane ticket twice because she forgot she bought the first one! Each ticket cost $500, so yeah- that sucked.
What could have prevented this? Simply taking a peek at her bank accounts once a month and reviewing her latest transactions.Simply checking your bank account regularly helps you stay on top of your spending.Click To Tweet
You only deal with your finances when you can “get around to it”
There’s no denying it- business owners are busy and often we think just about everything else is way more important than our finances. Our financial record keeping settles to the bottom of our to-do list and we’re shocked when months go by and we haven’t done a single thing.
What’s tricky about dealing with your money last is that it’s really hard to pick up momentum after it’s been lost. After 6 months, you’re so overwhelmed by everything there is to do that you keep putting it off because you don’t know where to start.
The spiral continues until you’re biting your nails 3 days before taxes are due wondering, “How am I going to get this all done?”
Keeping up with your finances on a regular basis not only relieves the stress and anxiety of tax season, it also keeps your financial data organized so you can access it anytime. That means if you are trying to make important decisions about your business, you can consult your money to guide you. Plus, 30 minutes a week now can save you hours down the road.Keep up with your finances on a regular basis to relief stress & anxiety of tax season.Click To Tweet
Your business and personal expenses are mixed
Oh geez- this is where business finances go from being a mess to a HOT mess.
Imagine you’re making a pot of soup and you throw everything in it without a care in the world. The soup simmers and simmers and simmers until you have a glorious pot of…some stuff. It has sat for so long that you can’t tell the difference between a lima bean and a zucchini and while it might be edible- it’s not quite what you had in mind.
This is your biz finance system when your personal and business expenses are mixed. Especially when you’re not keeping up with your bookkeeping- everything becomes a jumbled mess of transactions.
When the time comes to eventually DO your bookkeeping, you spend SO MUCH TIME sorting out your personal and business transactions that the entire process take twice as long.
Not to mention that when your accounts are mixed it’s extremely difficult to monitor the cash flow in your business. You have no idea if your business is really sustainable because all the money is coming in and out at once and it’s impossible to assess your spending habits.
You don’t have a budget and spend money whenever it seems like a good idea
Cash management is one of the most important parts of running a business- even more important than being profitable!
It’s true. Regardless of if you’re profitable, spending ALL the money without a plan means you’re going to have trouble paying those big time bills and yourself.
Without a budget, it’s super easy to fall prey to shiny new thing syndrome (why are there always so many sales?!) and before you know it, the checking account is drained and your savings is a big, fat zero.
Budgets are an important tool to keeping your business on track with your goals. A good budget includes more than just how much you’re going to spend each month, it also takes into account your savings, debt repayment plan, and tax savings. It’s a well-rounded approach to what to do with the money in your business so that when you spend, you don’t wake up a day later wondering, “Should I have bought that?”Cash mgmt is 1 of the most important parts of running a biz- more than being profitable!Click To Tweet
You take money out of your business whenever you need (or want) it
Oh, guuurl- this tactic is bad news bears, especially for businesses with daily cash flow (as in you’re receiving payments all day, every day).
Here’s what happens: You get paid for your products or services on the day to day. You see hoards of money flooding your account and think, “Yippee! That studded velour cape is mine!”. You withdraw money as it comes in because it’s your money, right? You’re really sad at the end of the month when there is nothing left to pay yourself and the bills are piling up.
Pulling money out of your business whenever you feel like it is dangerous because you interrupt the cash flow of your business. Your business needs this money to sustain itself and constantly drawing it out means your business never gets a chance to grow.
Drawing money out all the time also impacts your personal spending. It’s harder to put boundaries on your spending when you feeling like you’re ballin’. The result? Spending increases while your savings and debt repayment plans stay stagnant.
Paying yourself 1-2 time a month a regular amount is a healthy way to draw money out of your business. This method is akin to giving yourself a paycheck and benefits both you and your business.
Your business knows what to expect in terms of owner draws (so you can plan your budget and spending around that) and you personally have a set amount of money to work with every month so you can prioritize your spending.Pulling money out of your biz whenever you feel like it is dangerous because you interrupt the cash flowClick To Tweet
You’re not willing to learn how to manage your money in your business
Think the money stuff will just work itself out? Or that eventually you’ll hire someone to do this for you, so why bother? Both of these excuses are holding you back from really getting a handle on your finances!
Money never just works itself out. It required attention and care, YOUR attention and care, to be healthy, sustainable, and organized. Even if you hire someone to do your bookkeeping or prep your taxes, the big time money decisions in your business need to be made by you. That means you need to have an understanding of how the money works in your business.
Besides, what’s more empowering than reading a financial report and knowing EXACTLY what’s going on in your biz or having a plan for your business that’s based on actual financial data?
Worried that you can’t learn to manage your money because you’re bad at math? Math is absolutely not a prerequisite for managing money. In fact, math is only a small part of a healthy financial system. What you need more than math skills are systems and processes to keep your money organized and you committed to your goals.