Budgets, financials and all that jazz

Transcript

When it comes to knowing your numbers and managing financials in your business, are you right across them. Or do you maybe take a bit of the ostrich approach – ignore it, stick your head in the sand and hope they go away? 

In today’s episode, I’m going to be talking you through:

• Why you need to focus on profit not sales
• How to get banking sorted for your business
• The value of creating a budget AND how to create one
• The monthly reporting process you NEED to implement into your business

I am sharing so many practical tips and tricks for being confident about understanding your numbers and how to achieve big growth in your business results.

Oh and after my little trial last week leaving out the episode intro with music, the consensus is that people actually prefer the pre-recorded intro and outro.  So, with no further do here it is..

You’re listening to the Clare Wood podcast, where we talk all things business, finance, marketing, and mindset for entrepreneurs, sharing practical tips, and actionable advice to help you take your business to the next level. Introducing your host: me! I’m Clare Wood, I’m a numbers geek, a travel lover, and a reality tv addict, and I’m here to empower you to create an extraordinary business and an amazing life, because I believe you don’t have to choose between the two. Now let’s dive right in to today’s episode.

Why you need to focus on profit not sales

One of the biggest reasons that business’s fail is due to poor cashflow and a lack of understanding when it comes to managing your business financials.  So being right across your numbers is really important as we want to set your business up for success! 

When I first start working with a new client, they may say they are chasing $1M or $0.5M a Million… which is great.  But it is extremely rare that anyone has a clear profit target in mind, which is strange, right? However, sales is only that.  Sales.  It isn’t the amount of money that you get to keep, your profit is.

People invest so much time, money  and energy into learning about marketing, about Instagram about sales funnels and email marketing, but very few people invest time and energy into learning and understanding their financial results! 

This is like filling a leaky bucket up, right? Because if you aren’t right across your profitability, you might be making more money, but if you are spending more money, you’ll be finding yourself still short of cash at the end of each month.

In my online program, Money and Marketing Makers, I immerse my clients into understanding their financial results inside out.  We learn the basics of accounting (in a fun way!), learn how to create a budget, and how to analyse financials.  So you know where every cent of your hard earned money is going AND you can continually keep developing ACTIONS to stay on top of your income and expenditure. 

So, how exactly do we do this?  Well lucky for you, I’m going to share some practical tips to help you uplevel your financial literacy. 

How to get banking sorted for your business

First things first.  How your banking is set up! 

Having your business financials separate to your personal finances is important for so many reasons:

• For taxation purposes
• To really understand how profitable (or otherwise) your business is
• To help manage cash flow more accurately
• It’s more professional to have a business bank account

Let me tell you a story about a client of mine, let’s call her Catherine.  She had her business and personal finances mixed in together.  She would sometimes run out of money.. but she wasn’t 100% sure why?  Was she spending too much in her business?  Or was she just spending her profits on Uber Eats?  And then when she got to tax time, well just let say her accountant was pretty happy to unravel the mess as it meant an almighty accounting bill!

So ensure that you have a separate bank account from your personal banking and also that you put aside money for tax and superannuation or money that the government gets you to set aside for your retirement.

The next action is to invest in an accounting software program.  Yes some of them can be costly, but this is an essential part of managing your business financials.  An accounting program gets connected with your bank account and you use the program to allocate your transactions in your bank account into the correct account on your profit and loss, so for example, in my bank account I might have an expense for ActiveCampaign, and in my profit and loss report this is classified to Email marketing.

The value of creating a budget AND how to create one

Next I want to talk about creating a budget.  Now, why do you need a budget? , then tracking your results regularly against this plan is a really powerful way to uplevel the financial results of your business.  This week we will cover how to create a budget for your business and what to do next.

A budget is a financial plan.  It can apply to a range of metrics in your business and a range of time periods

Creating a budget and staying accountable to it is one of the best ways to improve your financial results?  Why?  Because identifying how much you want to earn and what you will need to invest to achieve those results is essentially writing down a goal (which massively increases your chances of achieving it!).  Tracking your performance against your budget helps you understand why your bank balance might not quite be where you want it to be (ie. Are you earning less than your plan or spending more than your plan) and importantly means you can CHANGE your behaviours to CHANGE your results!

So how do you create a budget?  For the purposes of today, we are just going to focus in on one kind of report- the profit and loss report.  Other reports might be applicable for your business though.

You write out month by month, the sales you wish to achieve each month AND your expenditure for

each month. The sales – expenditure each month = your profit or  loss

Some hints when budgeting:

• Don’t set your sales targets too high or it will feel unachievable– you have to believe your numbers are achievable!
• But also don’t set your targets too low! If you are smashing your targets each month, you probably haven’t set them high enough!
• Look at seasonal trends, for example, if your business is traditionally very slow in January, make sure you plan accordingly in the new year (or even better, come up with a way to generate additional income in that period moving forward!)
• Don’t get caught up in perfection! Having an 80% budget is better than no budget at all

Once your budget is prepared, then upload it into your accounting program, so that you can track your actual performance against

The monthly reporting process you NEED to implement into your business

Next, we are going to talk about the monthly reporting process you MUST implement each month!

THIS IS HUGE PEOPLE.

When we track the financial results of your business, you can use this information to change the outcomes achieved by your business.  If you want to make more money, you will want to listen to this!

So after you’ve loaded your budget to your accounting program, at the end of the month, you will run a report budget vs actual.

Next what you do, is to understand and analyse the numbers in this report.

• How have your sales compared to budget?
• What about your expenses?
• Do each of the line items make sense?

And lastly, and most importantly!!!!  You should create an action plan of things that you need to CHANGE as a results of your findings.  For example, do you need to uplevel your marketing to grow your sales?  Or reduce your expenses?  Or invest MORE so that you can grow?

So obviously we can’t cover EVERYTHING in one little podcast episode, but I will be launching a FREE training program soon where I will go into more detail about managing your numbers called Mini Makers. You can join via shownotes episode31

Also I’d love to ask a huge favour, if you got lots of value out of this episode, please share this episode to your socials (and tag me) because I want all business owners to be upskilling their financial knowledge so I would love to be able to help more people.  Thank you!

To sum up today. We have spoken about:

• Why you need to focus on profit not sales
• How to get banking sorted for your business
• The value of creating a budget for your business and how to create one
• The monthly reporting process you NEED to implement into your business

Thank you so much for joining me today, if you enjoyed this episode, please make sure you subscribe to receive future episodes, and I’d be so grateful for a review on apple podcast! If you’d like a copy of the show notes or any of the links mentioned today, please jump over to clarewood.com.au/podcast and remember that Clare is spelled CLARE, have a wonderful week and look forward to chatting to you again soon!