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#050. My Top 5 Money Tips: Strategies for Running a Profitable, Predictable Business

March 10, 2021

 

RESOURCES:

FREE DOWNLOAD: Profit-Tracking Google Sheet Template

#40 3 REASONS TO CAST A VISION BEFORE SETTING GOALS IN THE NEW YEAR

 

 

5 Essential Financial Strategies to Build a Profitable Business

Hi there ! Today I’m talking about the financial strategies that I use within my business to make it stable, profitable and, overall, a successful business. I’m going to be sharing my top tips about everything from budgeting for expenses, planning for profit and ultimately, hitting my big financial goals. 

Today’s episode is for you if:
1. You find yourself totally unable to predict your annual income.

2. You feel frustrated because it seems like you have a lot of money coming in each month (or year), but your personal bank account doesn’t really reflect that.

3. You want to grow your team and add contractors or employees, but you have no idea how to know if you have the money to actually do that.

4. You want to make a certain amount of money annually but have no idea how to get there.

So essentially, today’s episode is for anyone who hasn’t already mastered their business finances. 

I really believe that when it comes to money, you have to have a plan. Profit does not just happen. And any business that wants to grow and thrive needs to be profitable. Without a financial plan, you end up spinning your wheels, never feeling like you’re working enough or making enough money, and ultimately, you really won’t make that much money.

So this is what I’m digging into today – my 5 top financial strategies for running a predictable, profitable business.

OK, you guys probably already know this about me, but I really love anything that has to do with budgeting, numbers and, in general, finance. In my personal life, my husband, Evan, and I literally have a special date night set aside every single month to go over our budget and finances. It is, quite literally, a highlight of each month for us. 

But listen . . . I know this is weird and unusual, and, especially in the wedding industry and creative entrepreneurship world, very uncommon. I also know that this is a huge weakness of many businesses. So for all of my right-brained creative friends who really hate working with numbers, this episode is for you! 

So first, I want you to know that I honestly don’t think managing the finances in your business is that hard IF you have the right information and the right tools. Yes, I am speaking on behalf of my creative friends, not my number-loving friends. To be honest, I think we make finances way more complicated than they need to be. So right upfront today I want you to know that you CAN be thoughtful, responsible and ultimately, successful with planning your business finances without being an expert.

Something else I want you to hear, though, is that this is something that you need to give *a little bit* of attention to. It’s not something you can totally ignore for 99% of the year and suddenly become an expert at over night when taxes are due or there are bills to pay. The strategies I”m sharing today require a little bit of discipline, especially upfront, and then a little bit of regular follow through on a monthly basis. I think we could get in to a larger discussion on general business practices and how to organize your day effective, but for today’s episode, we’re sticking to just the financial stuff.

So what do I have for you today? I have _____ proven financial strategies, that I use in my own business, to be incredibly profitable each year. Let’s get started!

#1. Start with the End Goal in Mind

The first thing you need to do to run a predictable and profitable business is set a financial goal. In other words, how much money you want to make? This is not a matter of just picking a number that sounds really great and going for it. There are a few key steps to take to do this well:

First, you need to understand your financial history and how your business has done in the past so that you can know what you’re capable of.

Next, you need to consider your personal and business vision and any other big goals you’re setting for yourself and how this might impact your business in the coming year.

Then, finally, you can set an annual income goal.

So let’s go through those steps together. First, let’s talk about financial history. What exactly do I mean by financial history? What I’m talking about here is how profitable have you been in the past? How much money does your business typically bring in? Have you been making more and more and more each year since you started? Do you make about the same amount each year? Are you pretty much brand new so you don’t even have a history yet? We’re going to talk about how to know your past numbers and then how to interpret them.

This step is especially important if you’ve never really paid attention to the money in your business in the past. I think a lot of small business owners do set financial goals for themselves, but they aren’t based in any true facts of what they’re actually capable of. They don’t keep track of their numbers. 

If you want to know how to make a plan moving forward, you need to know what you’ve been able to do in the past. This will help you be accurate, make attainable goals, and not over-extend yourself financially.

So, basically, what we’re doing here is gathering data about the financial health of your business. We’re going to look at gross income, total expenses and profit from your last year of business.

If you have this information readily available, fantastic! Pull it out.

If this is brand new to you and have no idea how to even get this information, here’s where I want you to start:

First, if you use Quickbooks Self-Employed, this is going to be super fast and easy. Log in to your account, go to the “reports” tab and you’ll see a “profit and loss” report option. Select the correct date range (so, Jan 1 – Dec 31 of last year or you can even look at dates in real time – so if you’re listening on the air date, you can look from March 10 of last year to March 10 of this year). And on this report you will be able to see two important numbers:
1. “business income” which is your gross income.

2. “total expenses” which is . . . well . . . your total expenses.

Now if you don’t have quickbooks, there are a few other ways to find these numbers. If you keep a log of any kind that tracks your expenses, you can use this. I know a lot of you do something of this kind throughout the year just for tax purposes, but I’m guessing if you’re listening to this episode you haven’t exactly been very loyal to that spreadsheet. . . am I right? But, chances are, you’ve done something to account for your expenses for tax purposes because you’ve want to be able to write off your expenses. So if you don’t have Quickbooks, you can check out your tax return and look at your Schedule C.

If you don’t even know where to find this Schedule C, no worries. It’s actually quite easy. The words “Schedule C” will be in the top left corner so just go through each paper until you find that one! If someone helped you prepare your taxes and knows you have a business, you absolutely will have a schedule C in your tax documents.

So take a look at that Schedule C, and on the right hand side on the line labeled 1, you’ll see your “gross receipts” which is your gross income.

And if I didn’t already say it . . . gross income is simply the total dollars that you brought in to your business before any taxes, expenses, or other payments are taken out or deducted from that total.

So can see your gross income on Line 1, and then on Line 28 (if you’re looking at a 2020 tax return), you will see your total expenses (and if you’re looking at a different year’s return, it will either be 28 or a line close to that one and labeled “total expenses”). 

Now I want to caution you that these expenses might not actually be your actual total expenses, these are just the total expenses that you are allowed to deduct for tax purposes. It’s not a huge deal for the sake of this tip, but if you did make any major purchases and you don’t think those expenses were included on your tax return for one reason or another, you may want to consider that.

One more thing I want to mention – 2020 was a weird year for a lot of us, right? Your 2020 financial records might not be the best indicator of the financial health of your business. If you’ve been in business for a few years, I would definitely recommend looking at your numbers (in the exact same way!) For a pre-pandemic year. So that could be the year of 2019, or it could be March 2019 to March 2020 . . . whatever it is for you, it is probably wise to look at multiple years of data if the pandemic affected your work in any way (which, for most of us, it definitely did!).

OK – by now, you should have a general idea of the year or two of gross income and expenses. The last thing you need to determine your profit. Now I’m going to oversimplify things just a bit and tell you that to find this number, simply take your gross income minus your expenses. This is, more than likely, not what you actually paid yourself . . . but we’ll get there later in this episode. For the sake of understanding your financial history, do this simple calculation to find what your net profit was for each year you’re looking at. By seeing this number, you’re getting a snapshot of your business’ profitability over the last few years!

So, I mentioned that this is oversimplifying, and here’s why. That net profit isn’t necessarily what you can pay yourself or you actually did pay yourself. Here’s why: there are a lot of other factors in a business to consider when it comes to money! You might have some money you are saving for an upcoming expense in your business. You might have a reserve built up for emergencies in your business. You may even just simply need to keep a balance in your bank account to keep it open. In my own business, all of these factors and more contribute to the fact that the money I actually pay myself is not the same as gross income minus expenses. I have a lot of thoughts on this, so more on this topic of paying yourself later!

Now back to profit goal-setting. Once you have a general idea of how your business has been doing financially, you are one step closer to making an income goal for yourself and your business. 

But before you do – one more thing to consider: what is the bigger picture?

For many businesses, especially early on, the focus is on growth. Book more clients, raise your prices, focus in on an ideal clientele, and, overall, make more money year over year. However, as you’re thinking strategically about your income goals, you absolutely must consider the bigger picture of what you actually want for your business and for your life. Yes my friends, I’m talking about your life and business vision.

I talk a lot about vision-casting on this podcast because I really believe it is the crucial first step in building a successful business that is fulfilling and life-giving. I’m not going to go into the details of vision-casting on this podcast, but if you’re interested in learning more or are new to the podcast, check out episode #40 3 REASONS TO CAST A VISION BEFORE SETTING GOALS IN THE NEW YEAR which comes with a free guide to vision-casting. 

You need to understand the bigger picture of what is most important to your business and your life, because these priorities in your life should align with your desired income. Aiming to make more and more money each year without a specific vision will leave you feeling burnt out, disappointed, and likely, feeling like you never quite do enough. If you have a clear idea of where you’re going and why, deciding on that desired income goal is going to be easy.

And, side note – you may find (if you’ve gone through my vision-casting workbook), your life vision might already include an ideal annual income. And if you envision drawing this income entirely from your business, then you do partially have your answer. However, a perfect-executed vision does not happen over night. You may have set that as a longer term vision because you know, realistically, that it will take longer than just to the end of this year to each that ideal income. That is OK and I want you to know that I think you’re being really smart and strategic with your income! Knowing that you want to get to X income by a certain year will actually help you set up stepping stone goals each year to get there. And by examining your business’s financial health, you can determine if this vision is even realistic at all.

So, in summary, think about the bigger picture you have for your business and for your life. This should be a main consideration as you set income goals. And now let’s actually talk about setting those income goals . . . 

The questions you should ask yourself are:

  1. How much do I want to make from my business this year? And
  2. Is that realistic?

So, how much do you want to take away from your business, now that you’ve considered that bigger picture? What amount makes sense for your personal financial goals? How much do you need not just to pay the bills, but to work towards those larger savings goals in your future? Do you know that number? Take some time to consider what it is.

Next, is that number realistic? Look back at your financial history that you’ve been studying. How far off are you from the goal? Is it worth it to consider cutting some expenses, raising your prices or taking on more clients overall? What is realistic? 

This is a process that takes some time. I know that this may feel a little overwhelming, especially if you typically try and avoid thinking about numbers and money, and it’s also something that you’re not going to be perfect at right away. That is totally OK! I really think that the important thing is to just put a goal out there. Know what you’re working towards. This will help push you, but it will also help you know when you’ve done enough and you can relax and celebrate. For me personally, setting an income goal has been freeing. It’s allowed me to feel like I can say “no” to jobs I don’t want to do and leave lots of weekends free. It’s also helped me know that I can bring on team members and actually pay someone to do the work that is easy to pass off to someone else.

It doesn’t need to be perfectly set up, but the bottom line with tip #1 is to start by having an end goal income in mind.

#2. Pay Yourself

Maybe this sounds absolutely insane that this is on my list of “best” tips, but I kid you not, so many small business owners don’t pay themselves regularly! So, looking back at the year, they have no idea what they actually pay themselves. Are you one of those people? If you are – it is OK – there is no shame here and honestly, this is how I myself ran my business for way too long.

So, it’s not that I didn’t pay myself. I would randomly transfer over big lumps of money from my business bank account to my personal account pretty regularly. But there was no strategy or plan involved. It was just whenever I thought of it and felt “safe” doing so. This made it really hard for us to plan our personal finances and also, at the end of the year, I wouldn’t really have a concept of exactly how much I’d transferred over throughout the year. NOT GOOD.

Maybe it’s obvious why this is a bad way to do things, but if it’s not obvious, I’ll tell you: there are A LOT of reasons why this is really detrimental to both your business and your life.

First of all, it’s bad for your business because it means your business is running you, not the other way around. Having no plan for payment means that you aren’t using your business to gain a profit. Sure, you can withdraw whenever you feel like, but you aren’t getting a regular paycheck. It’s unreliable. You can’t depend on that steady income. And since you can’t depend on it, you also will never know when you have enough. 

This can lead to a lot of problems. First of all, you may over-extend your finances because you think you have more than you do. This could lead to debt, not being able to pay bills, or just failing to reach your personal finance goals. This can also lead to not being able to plan for the future. You may be way overly-cautious (and this is how I used to be!) with planning your personal finances, so you end up not really being intentional at all with that money. You won’t be able to make big plans – like buying a house, or going on a big trip, or paying off loans. These are the big things that should actually be fueling your desire for income – having that income for a purpose.

So honestly I could do like several podcast episodes on personal finance. But that’s not what this podcast is about, so tying this all together, I want to encourage you simply to make a plan to pay yourself. And specifically, I want you to plan a certain dollar amount – the same amount – to pay yourself monthly. It doesn’t (by any means!!) need to be your goal income for the year. In fact, I would advise against it. Just plan to give yourself a “paycheck” (for me personally, I pay myself monthly about 2/3 of what I actually set as my goal income) and then that extra income at the end of the year can be considered your bonus.

There is actually an excellent book on this topic called Profit First, it’s by Mike Mick-AHL-o-witz, and I would highly recommend reading it if you feel like your business finances are all over the place. I’ll link that in the show notes!

Ok, tip #3!

#3. Create a Budget

The next thing that you really need to do to have a stable, profitable and successful business is to create a budget that you can follow throughout the year. 

I’m curious how many of you follow a budget in your business already. Do you plan out your purchases and allocate set amounts of money to different expense categories in advance? Maybe you do, but I’m going to take a wild guess and say that the answer is probably no. Most creative small business owners do not have a system for budgeting that they actually follow diligently. I think this is because it’s overwhelming, they don’t have a clear system for budgeting, and they don’t see the point. Can you relate?

So, I want to make this pretty simple for you because honestly it does NOT need to be complicated, but it is something that you should be doing. So if you’re totally brand new to creating a budget and feel overwhelmed about where to start, here’s what to do:

I want you to make an annual budget and then break that down into monthly chunks. Here’s how. First, look (broadly) at what you’ve spent money on in your business in the past. Make 5-10 big categories. Don’t worry about breaking it down in to specific line items. So, for example, this might be:

Monthly subscriptions & bills (like Adobe, Quickbooks, Honeybook or your CRM system, rent in a studio, etc)

Equipment (cameras, computers, lenses, and anything else that goes along with performing your job)

Client Costs (purchasing albums, sending gifts, styling materials for individual wedding days)

Taxes (money set aside for quarterly estimates, sales tax collection, etc)

Travel (if you travel sometimes or a lot for your business, this could include meals you buy on the road or uber trips as well)

Education (buying courses, investing in mentorships or coaching, going to a conference)

General Supplies (anything you need for your office or other miscellaneous items)

Payroll/Contractors (even if it’s just you on the team, you should plan a monthly budget of what you’re going to pay yourself, like I mentioned before! And if you work with contractors or have employees, this is all the more important!)

So these are a few main categories that I’d suggest, maybe you have a couple more or maybe some don’t apply to you, but figure out the big categories. Then, look at some of your past years expenses (as closely as you can) and make an estimate of what you’ve spent in the past. Again, if you have Quickbooks this is literally as simple as going to the reports tab, looking at your profit and loss report and then checking out the line items for all those expenses! Super easy!

Now I know if you’re starting from scratch on a budget and don’t use any type of application for tracking expenses, it may be kind of hard to estimate your expenses. Just do your best. Don’t get overwhelmed about this part or think it has to be absolutely spot-on perfect. The important thing is just taking a step and starting to get in this practice!

So, you’re looking at how much you think you *might* spend on each of these things annually. Now, you need to divide that number by 12 for each category, and there is your monthly budget, category by category. That monthly total is going to let you know how much you absolutely need to make each month (and also, each year). Now you’ll remember that we included your own paycheck in these numbers. That is super important. That needs to stay in there! Remember that ideally, you are going to make more than this budget (maybe even a lot more!) so that at the end of the year, you can pay yourself a big old bonus for a job well done! But budgeting this way allows you to essential guarantee yourself that paycheck as a part of your monthly expenses.

More on how exactly to keep track of all of these things in a few minutes, but now I want to move on to tip #4. 

#4. Track Your Income in Real Time

So we’ve made goals, we’ve made a budget, we’ve estimated based on what we think we can make in a year . . . but how is it actually going? That is the question we’re going to answer in #4.

If you are anything like me, you love to make plans, but the follow through can be a little more difficult. Fear not. The next thing we are going to talk about is actually getting into the REAL numbers. You’re actual and projected income.

You need to track your income because this will allow you to know how much more business you need to bring in on a monthly and annual basis. If you’re setting goals for booking and for income but you’re not tracking as you go, how will you know when you’ve actually completed that goal, right? You need to see it happening in real time. You need to account for incoming payments so you can estimate how much money is going to hit your bank account on a monthly basis far out into the future.

I can’t tell you how valuable this practice has been for my business, especially in 2020, because we had all these clients moving dates and rescheduling and if we hadn’t had a system, I would have been at a total loss for knowing what to expect.     This likely would have resulted in me taking on way too much work just because I would have been worried that I wasn’t going to be profitable or make money in the new year. That could have been a DISASTER. Thankfully, I had a system and was able to easily track how we were doing as a business. And guess what? In 2020, we actually increased our gross income by about 30%. That’s a huge increase for a year with a global economic crisis and worldwide pandemic!

Now let’s talk about how to actually execute this tracking. Every business is different, so every business is going to project their income a little differently. If you are a business that signs a client and that client immediately pays in full for the service, well . . . that makes your life pretty easy. The minute you are promised the money, you get paid. But for most of us in the service industry, we are paid over time in multiple installments. On top of that, some of these payments may come in in different months or even different calendar years. Yikes! This could get confusing!

So how do you keep track of what you’re supposed to be getting paid when it hasn’t hit the bank account yet?

You need a profit tracker.

I know this is a little bit complicated, so I have good news: I have a profit tracker template, it’s a google doc (actually, google sheets) that you can use and very easily track your progress each month. Download that at HannahBjorndal.com/profitsheet and I will link that in the show notes as well.

So basically, this google sheet is going to allow you to plug in all of your payment amounts and then it will help you determine how much you are projected to make annually and also on a monthly basis. It’s really great, if I do say so myself, and I use it in my own business to project our monthly income and also our annual income. You can duplicate this sheet for following years, so that when you start booking work in which you know you’re going to be getting paid the following year, you can plug that into the sheet and start even predicting out income for following years!

You guys . . . if you idon’t have a way to track your profit in real time . . . go download this now. It’s literally free. It will make your life so much easier. It will accomplish everything I just mentioned without having to do any of the work of putting a system together yourself. So check that out right now – HannahBjorndal.com/profitsheet.

Ok, finally – #5. You guys know how much I love lists of 5 things! And here we are at number #5.

#5. Use Apps That Make Life Easier.

If you want to be intentional with your finances but you aren’t an accountant, tax professional or financial expert, this is the way to go. There are really inexpensive, user-friendly applications out there that make all of this kind of stuff a breeze. I’ve already shared my free resource with you, but think about how you can virtually “outsource” this (in a sense) to apps that do a lot of the hard work for you.

Here are my favorites:

First of all, you already know I LOVE quickbooks. Quickbooks has many features and many benefits. It will help you with your taxes, help you see the big, important numbers regularly, help you track and keep track of all your expenses and receipts, so I can’t recommend this one highly enough. And yes, I have a discount code – go to HannahBjorndal.com/quickbooks to take advantage of 50% off for your first 6 months! That’s going to save you a lot of money!

Next, I want to introduce you to a little application called Mvelopes. That is the letter M as in MONKEY, -velopes. So yeah, it’s a play on words. I love this app. I have 3 separate accounts with Mvelopes, I’m not kidding – we use it for our personal finance, I use it in my business, and we also use it for our AirBnB business. I could not live without Mvelopes and I am legit obsessed with it.

Mvelopes is a budgetting app that uses the concept of envelope budgeting. If you are a Dave Ramsey fan, you know what this means, if not, no worries. Essentially, this app helps you plan pro-actively for expenses by creating virtual “envelopes.” These envelopes represent your different categories of expenses – so taxes, travel, payroll – all the things we talked about before. You can create as many envelopes as you want for those categories. Then, each month, you digitally drop a set amount of money (which is the amount you budgeted for) into each category’s envelope. The system connects to your bank and credit card and allows you tell it which expenses were taken from which envelopes. 

I think this is INCREDIBLY effective in creating and executing a budget. It’s fast, it’s easy to use once it’s set up, and conceptually it just. makes. sense. It’s also pretty inexpensive – I wanna say it’s like $5/month, so well worth the money for all the time it will save you and all the planning it will allow you to do! I also offer mentorships and consulting to help you get set up with this system if it’s something you’re interested in pursuing but don’t have the time to figure out exactly how it works, so shoot me an email if you want to know more about that, info@hannahbjorndal.com. 

Those are the two applications that I would recommend. There are a lot of other options out there, so definitely don’t limit yourself, especially if you find one that helps you with a specific area of your finances. 

I also think that it can be really helpful to work with a business coach or mentor who can help you get set up for success. Whether it’s an ongoing relationship or even just a one-time meeting, sometimes you just need to outsource to get things going. 

So take advantage of resources – both free and paid – that will allow you to focus on what you love so that you don’t have to worry about technical side of the numbers and can focus specifically on your profitability.

Wow, I feel so pumped about all of this. I love talking about finances and money and ultimately, love seeing small businesses thrive when it comes to profitability. I would love to answer any and all follow-up questions that you have, you can connect with me on Instagram @HannahBjorndal, send me a DM or you can email at info@hannahbjorndal.com.

I am so happy you’re here! I make all of these episodes with you in mind, and I release new episodes every single Wednesday. If you love this podcast and haven’t already left me a review, please do so after this episode ends. And if you haven’t already, make sure to subscribe!

See you next week!

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