Financial Intelligence is not the sexiest of topics but it is critical to the success of your business.
I am an accountant and have also worked much of my life as a financial planner so clearly I like numbers… and you may not like them at all but I ask you to hear me out in this post. I promise I will try my hardest not to bore you. 🙂
I had the idea to write this post today after a conversation I had with a friend. She is finishing a course she is doing to start a new career. She told me she had two units to complete both on Financial Intelligence. She could not understand why she needed to know this information.
That comment took me back right away to my previous careers and dealing with business people who did not know the first thing about their own finances.
My days as a financial planner
In my days working as a financial planner our practice had many specialist doctors as clients. It never ceased to amaze me how some of these people had their finances for both their business and personal life in such a mess. They were all top income earners and often spent all that they earned with nothing left over to pay taxes.
I used to compare this to some other clients who were employees with modest salaries and still managed to have investment properties and a share portfolio.
I learned it is not how much we earn that matters but how much we keep and what we do with our money that is important.
Financial Intelligence in your business ?
So what does this mean to you?
If you understand the financials in your business – congratulations. If you do not then please hear me out.
I am not suggesting you become an accountant or financial wizard. What I am recommending is that you understand what the numbers for your business mean and that you keep them up to date.
Here are some tips that may help you.
Tip one – Treat Your Business Like a Business From Day One
This is perhaps the most important tip. If you are serious about your home based business set it up to be successful from the beginning. If you treat it like a hobby it will pay you like a hobby.
Tip two – Set Up a Separate Business Bank Account
Open a separate bank account for your business. Pay your business expenses from this business account and your income into it.
Keep your business separate from your personal affairs. If you don’t do this it may cost you more in bookkeeping fees to sort it out, as at some stage you are going to have to separate business from personal. Do it properly from day one.
Tip three – Set a Budget
The budget should be for your expenses and should be monitored and measured. You should also set yourself goals or targets for your income.
Tip four – Get Receipts For Everything You Spend
If you are unsure as to what you can claim as expenses for your taxation then keep the receipts and ask your accountant or bookkeeper. It is best to ask for guidelines as to what you can claim and sort the receipts into categories. For example some expenses may be postage, printing and stationery and travel.
Tip five – Have a Debit Card or Credit Card You Use Solely For Business
This advice again is for ease of accounting. Depending on the type of business bank account you set up you may be able to have a debit Visa or MasterCard attached to it. This makes it easy for tracking all your expenses.
Tip six – A Percentage of Your Home Expenses May Be Claimable
As you are working from home there are several things you can claim against your business. This varies from country to country so you will need to check with your accountant. Telephone and electricity are examples of expenses that may be tax deductible. There are many more expenses you will be able to claim– so discuss this with your accountant.
Tip seven – Keep Your Accounting Records Up to Date
I suggest monthly as this way you can remember what you have done. The more time that passes before you do your bookkeeping the more likely it becomes that you forget what some of your expenses were for. If you are not going to do the bookkeeping yourself then hire a bookkeeper.
Tip eight – Choose Wisely When You Choose an Accountant
Choose on their ability, not on who will do your work for the cheapest price. I cannot stress this point enough. A good accountant will save you money in taxes so his/her fees are an investment. Choose someone who can advise you on how to structure yourself and is proactive with advice and not just a number cruncher.
Tip nine – Consider Outsourcing
When we start a business we may have limited funds to pay others to do various tasks so we are faced with the decision to use our “sweat equity” or pay someone else. If there is something that is clearly not our expertise then it is advisable to outsource that activity.
Once we start to earn some income then it is a waste of our time to do a task we could pay someone else to do if we could earn more money in the same time frame.
Tip ten – Understand the Difference Between Turnover and Profit
Turnover is your gross income. Profit is what is left after your expenses, or cost of achieving your income. You often hear people quoting their turnover and how much money they made but it means nothing without also knowing how much they spent to make it. Many companies with huge turnovers have gone bust! Always aim for profit.
Tip eleven – Know What Your Taxation Obligations Are and Pay Them on Time
Have a discussion with your accountant so that you understand the taxes you will be liable for and know when they must be reported and paid.
Tip twelve – Cash is King.
Cashflow is the lifeblood of your business. Keep an eye on your cashflow. If you do not have this skill get some help and become educated. Many small businesses fail because they do not monitor their cashflow.
Accounting, bookkeeping and administration are tasks many budding entrepreneurs find boring and do not want to spend time on. If this is you please outsource it from the beginning.
However a word of caution on this matter; if you do not know how to read numbers and understand your financials then your business may be doomed from the start. It is one of the contributing factors to why the failure rate of start up businesses is so high.
You need to educate yourself. Understand what the numbers mean and then if you want to outsource the task by all means do so.
Have I convinced you that you need to understand the financial intelligence for your business? Please leave me a comment below and let me know if you are on top of this area in your business.
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Make it a great day!