Financial Intelligence is not the sexiest of topics but it is critical to the success of your business.
What do I mean by “financial intelligence“? – I mean understanding the numbers in 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.
Final Advice
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.
If you think this post could benefit others please share it.
Make it a great day!
Sue Price
Skype: sueprice
William Butler says
All great common sense points Sue.
Just imagine if common sense were a commodity…
Kind Regards,
Bill
Sue Price says
Hi Bill
Ah if common sense were a commodity 🙂 now do you think there would be a market for it?
Thanks for your comment Bill.
Sue
William Butler says
It may be so rare an element that not many could afford it 🙂
As to commenting, you’re very welcome.
Cheers!
Sue Price says
🙂
Adrienne says
I will admit Sue that I’m not the best person with my finances. Don’t get me wrong, I don’t spend beyond my means and I’m never late with a payment. I’m just not good with investments which is why I leave that up to my Mom. My brother will be taking over her estate so he’ll probably be the one to help me from that moment forward.
I don’t yet have a separate account for my business because when I got started I wasn’t making that much so my accountant told me that things were okay the way they are.
I also don’t have a separate credit card for my business either. I do keep all my receipts and my accountant is the one who has helped me understand what I can claim and what I can’t so that’s been a tremendous help for me. It also helps that working from home my expenses are way down as well for things I use to have to purchase.
Great advice though and I’m sure as my business grows I’ll have to implement more of what you’ve shared with us today so thank you for that.
Have a great week Sue and thanks for being my guest today!
~Adrienne
Sue Price says
Hi Adrienne
I am sure you are excellent at managing the money you have. I understand you may not have experience with investments but I am sure you could learn if you wanted to.
I will tell you why I prefer to see people start a separate business bank account from day one. It is simpler to sort out but more than that it is setting up the expectation that you are going to succeed in your business. It is a mindset thing for me.
I knew you would keep receipts and it is good your accountant has educated you as to what expenses you can claim. Working out of home is great isn’t it when we can turn some of our expenses into our business?
After years of doing peoples accounts and taxes nothing surprised me how people kept their affairs. It is every accountants nightmare to be presented with a box of stuff to sort out. I am glad I do not do tax anymore.
I am sure the day will come when you need to separate out your business from you own finances. In fact when we see this product of yours may be a good time.
It was my pleasure to be your guest today Adrienne. See you later in the week.
Sue
Donna Merrill says
Hi Sue,
Because I’ve been in business for myself for such a long time, I can proudly say that I have done all the above. The only thing I need now is outsourcing! I tried a bit here and there, but I need to learn how to do that one better.
Over the years I’ve split tasks with David and now we are both at the point where we need a VA.
I can tell you this: As we are packing things to move, we realize we have tons of paperwork. We do need to keep all receipts and other things for several years before we can toss them. I think I need a separate moving van for that he he! But it is important to hang on to them.
I do have my own Inc. so anything I do goes into that account with it’s own credit card that makes life easy.
The above ideas are great! We need to do them. When we do, our mindset will get stronger to treat our business as a business.
Donna
Sue Price says
Hi Donna
Ah my seasoned business friend. Good that you are so sorted in this area. A VA sounds like a great move. I am sure it will make both you and David’s lives so much easier.
We are a bit like you with paper work. In Australia you have to keep receipts for 5 years. We throw out each year when we reach that. But then on top of it Ivan has clients paper work. So we need a lot of storage space too. What happened to the “paperless office” we were told about?
I am so glad you said that Donna about the mindset and treating our business like a business. It has always been my thing that people should start with the end in mind.
Thanks for your comment and see you in a couple of days Donna.
Sue
Enstine Muki says
Hey Sue,
I’m tempted to believe you were in my brain early this morning 😉
You just treated a crucial I burned my brain on today – See, don’t like dealing with figures but nature has made it that I can’t avoid it.
One of the things I thought about was to dedicate one of my accounts for my online business. I just a VISA from the bank and thought that should be the sole online funding account for the moment (attached to paypal of course)
You see why I said you were in my brain?
Maybe we were at the Limbe (Cameroon) beach yesterday together 😉
Sue Price says
Hi Enstine
That is funny. It is often when something is on our mind then we get another message that we need. Ah so you do not like dealing with figures either? Many business people are the same. You know I do not like doing my own either. I hate to admit that given my background. When I was doing tax for a profession I hated to do mine as I had too much of it in the office. There is that saying “the bakers wife has no bread” – I was like that.
Perfect if you dedicate a visa to all your online expenses. It makes life so much easier.
Yes I see why I was in your brain 🙂
Thanks for coming over here and for your comment.
Sue
Liz says
Hi Sue,
I’m good for about 8 of those tips.
I have to say, I’m not fond of accounting, which is strange as my mother was an accountant. But I’m one of those people that loves doing the fun stuff. I’d much rather be blogging than crunch the numbers.
But you’re post is very well taken. This is all part of doing business and to be successful means you have to plan, measure and keep accurate accounts.
Note to self: Listen to Sue 🙂
Thanks, Liz
Sue Price says
Hi Liz
If you have 8 of those tips covered you are doing very well. You must have some of your mother in you 🙂
I do not really like accounting anymore either Liz so I understand you. Over the years I gravitated to marketing and that is what I love really. I am forever grateful for my initial training though as it is part of business. As you said you have to keep accurate accounts.
Thanks for coming over here to my blog and for your comment. I appreciate it.
Sue
sherman smith says
Hey Sue,
I’m embarrassed to admit, but although I have book knowledge when it comes to financial intelligence, I haven’t been the best on taking action.
It looks like I’m doing 4 out of 12 you mentioned. Yes, I know, that gives me a big “F” in Finance LOL, but this post is a good reference to keep myself in check! Thanks for sharing!
Sue Price says
Hi Sherman
You would not be alone in not taking action on your own finances. Even when I worked in the area I often neglected our business. My husband once threatened to employ an accountant if I did not do ours. These days I keep things up to date but I would rather write a blog post.
Thanks for visiting me here Sherman and for your comment.
Sue
Margarita says
Hi Sue,
I really appreciate the valuable tips you teach us in your post. I have been a tax advisor for 11 years now. I am so amazed by how people leave money on the table because of not knowing their rights. I like the saying: “The more you know, the less you pay”. Or vice verse.
I understand the advice about keeping receipts and other records. I have advised my clients on the same things many, many times. Yet, the following year, when I ask a question, the look for the answer on the ceiling. Strange…
Lack of discipline and following through is a must. Knowing what to do is not enough. This is a matter of changing habits and limiting beliefs.
Thank you again!
Sue Price says
Hi Margarita
Working as a tax advisor is eye opening isn’t it? I am like you and never ceased to be amazed at how people did not keep their records. I think you are spot on in saying “the more you know the less you pay”.
You are correct is saying that knowing what to do is not enough. We need to have follow through. I am not sure why so many people are reluctant to do just that.
Thanks for visiting me here and for your comment Margarita.
Have a great day.
Sue
Sylviane Nuccio says
Great tips Sue,
Even for me who is NOT a number person everything here makes sense and I feel so good because I’m doing pretty much all that. And coming from you it’s a good sign for me.
I’m glad you emphasis the fact that profit is only once you’ve subtracted all your business expenses, if you don’t, then you’re fooling yourself, because your illusion of profit is false. I know some people do tend to do this, because it just sounds nicer 🙂
I think that having separate accounts for business is very important and eliminates the chances of making mistakes.
True, it’s not about what you make but what you do with your money. We all know sad stories of millionaires who ended up with nothing.
Thanks for your expect tips, Sue 🙂
Sue Price says
Hi Sylviane
I am glad this all makes sense to you and that you are doing most of these things. Well done!
The whole quoting turnover or income rather than profit really annoys me. It is quoted online so much and is misleading. And yes as you say they do it as it sounds better.
So glad to hear you keep you have desperate accounts for your money. It is way too difficult otherwise to sort out especially as our business growsn.
It is not the most exciting of subjects for anyone, me included but these are things everyone must know.
Thanks for your comment Sylviane. See you tomorrow I hope if you can get on.
Sue
Barbara Charles says
All great tips and many of these things I’ve done for the last five years. Two years ago I set up separate accounts for everything, separate for house and business. I do sometimes cross over as I shouldn’t do but it happens. It’s had to keep that control. I understand it’s necessary.
And you’re so right. We’ve got to control our finances but I wonder how everything does it with all the life stuff. :0
Anyway, thank you for reminding me. I truly appreciate your insight into numbers ’cause I sure do despite working the numbers.
Thanks,
Barbara
Sue Price says
Hi Barbara
As I just said to Sylviane this is not the most exciting of topics or of our businesses but it is so necessary to know and do properly. I am sure you have it under control Barbara.
I would never have picked you as not liking working the numbers. I remember you blogging about debt reduction not all that long ago and you have such a good knowledge of it. Funny though I am an accountant and I do not like doing our accounts or numbers any more 🙂
Thanks for your comment.
See you tomorrow I hope 🙂
Sue
Dan Black says
These are some great tips when it comes to running a business and keeping track of the money. I think the first point you shared is so important because those who consider their business a business (no matter how small) will start to treat it like one. Great post!
Sue Price says
Hi Dan
The point you picked up on is a bit of a soap box for me. If people do not treat their business like a business they will not have the level of success they could.
Thanks for your comment. Hope you are having a great week.
Sue
Silviu says
Hi Sue,
Great article. Financial intelligence and financial education is one of the most important factors in a small business and in any business.
I did the mistake of avoiding financial education when I was a teenager. Now I’m sorry. You have to do it. There is no way you can avoid it, if you want success.
It is not how much we earn but what we do with the money we earn. True. So many people fail to understand this and lose everything they have. My best friend works very hard to earn money then it spends it very, very quickly. He doesn’t know what to do with his money. His financial “state” is an absolute mess. He’s so disorganized and he doesn’t understand why he has run in so many debts. Soon or later he will collapse. He practically doesn’t understand the concept of keeping your things in order, recording your earnings and expenses, creating a personal budget and so on. It is devastating when you see people who destroy themselves like this. And they are so many.
The art of spending money and lowering your taxes? WOW ! I know what you mean and I want to learn this art, too.
Cashflow? Yes this what I’m after.
With this article you did an excellent job. Thanks for sharing it with us.
Have a nice day
Sue Price says
Hi Silviu
I am glad you like the article, thank you.
I agree of course that financial education in business is very important. I also know that most people do not want to know about it and as you say you cannot have success without it.
Ah Silviu many people do not educate themselves on this subject when they are young so you are not alone. You have been learning and understanding now that is all that matters.
Your best friend sadly is one of many. I too know people like that – many of them. I used to be amazed at how much money some people can spend. In Australia our mining industry is very lucrative and many young men go and work on the mines. They make large salaries and many spend it right away. Crazy but they have not been educated.
I am sure you are on the right track Silviu.
Thanks for your comment and you too have a great day.
Sue
Siddhartha Sinha says
Hi Sue,
You mentioned nearly all the important points that is required to be focused while in the setup of the business with limited amount of money and the most important thing is discussed is what to prioritize and what do. All these things are in fact discussed in detail. So, this blog post will definitely going to help lots of new one who is going to do business with limited amount of fund especially.
Regards
Siddhartha Sinha
Sue Price says
Hi Siddhartha
Thanks for the feedback on this post. I hope it does help people be on the right track with the financial side of their business.
You have a great day.
Sue
Manny says
These are helpful tips Sue. Some people would pay money just to have this kind of information. Anyway, I like it that you mentioned about choosing an accountant. An accountant really plays a big part in your business.
Sue Price says
Hi Manny
Thanks for you feedback and I am glad you think people would pay money for this advice. I chuckle to myself as when I was an account I did charge for it. Maybe I need to do a product.
Yes all accountant are now equal and we need to have a good one.
Thanks for your comment and have a great day.
Sue
Lisa Cash Hanson says
I am the worst at keeping records. But I do have a bank account for my business. I am definitely in the category you mentioned of having to outsource 🙂
Sue Price says
Hi Lisa
Having a separate bank account for your business is a good start. And outsourcing is how people build businesses so know your strengths and play to them I say!
Thanks for commenting Lisa. Have a great day.
Sue
Chadrack says
Hi Sue,
This is really a timely post. I’m also an accountant and I know what it means to keep an eye on your finances as a business. Like you mention in the post many start ups consider book keeping or any other form of record keeping a big problem. A good knowledge of this will indeed save some headache along the way.
Sue Price says
Hi Chadrack
Nice to meet another accountant. I agree if people take this information and apply it to their business it can save them future headaches. Too many people do not pay attention to this side of their business.
Thanks for visiting my blog and for your comment Chadrack. I hope you are having a nice weekend.
Sue
Viola Tam says
Hi Sue,
Isn’t it wonderful that we have you with accounting and finance background to educate us about those important points?
Cashflow is indeed the lifeblood of any business. I have the luxury of running my network marketing business on zero overhead not too long after I reached that ‘break even’ point when my pay cheque could cover the monthly order that I placed for my nutritional and personal care products.
Having said that, I realized that since I went into full time, I have been investing a lot lately in formal business networking groups, personal branding and other marketing materials. I am starting to regret that I have had all my invoices everywhere (trapped in my emails)!!
How I wish I had come across your wise suggestions earlier!
Great post, Sue!
Viola Tam – The Business Mum
Sue Price says
Hi Viola
I am glad I have the accounting background I have as it does help. Most people that go into business have no idea of accounting or what they need to do. I have also witnessed many entrepreneurs find this side of the business uninspiring (or worse).
For all of us in a home based business it is difficult to do everything.
Sound like you were in profit very soon in your network marketing business. It is a different ball game though when we go full time and want to expand. It does take money and it is easy to lose track of that. I am sure you will get those invoices sorted out. Better to do it now before it is a very big job.
Thanks for your comment Viola.
You have a great week.
Sue
Arleen says
Of all the things you do in your business your tips are the most important. The biggest point for me is your comment..Cash is King.
Cashflow is the lifeblood of your business. I sat down and really looked at my bottom line. I have been paying a web developer to work on my website. I had looked at as he was like an employee although he is an independent contractor. When I ran the numbers, I realized that my website had cost me over half million dollars. It the beginning he had several people working on the site so more was getting done. Then he was only one person. I have cut his hours in half and I now have some cash flow. The economy has been tough so it is important to really review your bottom line after all the expenses.
Sue Price says
Hi Arleen
Yes cashflow is the lifeblood of our businesses. Your web developer story is an example of what can happen to us all. Expenses can run away from us so good you are now on top of it. The economy is tough and it is therefore even more important than usual to be on top of our numbers. Having said that we should do it in any economy but we tend to be more diligent when times are tougher.
Thanks for your comment Arleen. Have a great week.
Sue
Mayura says
Hi Sue,
You convinced the need of financial intelligence since I read your post title 😉 Thank you for this post as I’ve grasped ideas to follow now on dear.
How true! It doesn’t matter how much we earn, unless we can’t take control of spening ’em.
Most lately I had a discussion with a relative who thought blogging is just a waste of time and especially because I do it as a hobby 😉 I think sometimes we misjudge the difference between spadning and investing, if we never been there. You know, blogging is a hobby for me but I’m a freelancer too. Eventhough I don’t blog for business, all my clients found me through my blog 🙂
Back to topic. Actually I haven’t thought much about the importance of record keeping, invocing and all that relates to finance. But as I’d simply like to be organized, I have created seperate bank account and obtained credit card for my business activities Sue. I’m glad to see it in your list 😉 It simply helps me to track income and expenses, and prevent recalling what I’ve missed. Plus I hate to filter out my personal and business stuff from same statement 😀 It just waste my time.
You have a fabulous week there dear 🙂
Cheers…
Sue Price says
Hi Mayura
To me you sound very organized with your separate bank account and credit card. You are spot on that it is a waste of time sorting through personal to find out what is business. Maybe you had not given it much thought before but it sounds like you are on the right track with your records.
Ah to the topic of blogging. If you get your business from your blog it is really a lead generator. I think a blog is about our own personal branding and it is a form of marketing.
In my offline business some years ago now we used to do trade shows. It was where we got most of our leads from but we could not easily tie in which sales came from the shows. Marketing and advertising in business are not always measurable. When we do paid ads of course we can work out our return on the money we spend. But with blogging, social media and other forms of getting ourselves out there it is much more difficult.
So even though you say blogging is a hobby for you if it is bringing you clients I think it is more than a hobby. 🙂
Thanks for your comment Mayura. You have a great week too.
Sue
Sonia says
Excellent advice. I made tons of mistakes when I started my own business 13 years ago online. I was green with envy and didn’t have a clue how to manage the profit I did make and separate that from my personal finances. No one ever told me to get a separate account although, I figure it should have been common sense on my party.
Now, I write things down and know what to expect or know what I spend each month on my personal bills versus my business. We have a separate debit card thanks to Paypal and it works out quite well. I also love what you said about treating your business like a business and not a hobby. I know some people start out that way, but wonder how hard it is to transition yourself into business mode. Thanks for all this great advice, I really needed the reminders.
Sue Price says
Hi Sonia
I think when most people start a business their accounting is the last thing about. Separating your business from yourself just makes it so much easier as you found out along the way.
A separate debit card is a great idea. I have the same. It makes it easier.
I think when people start out with a hobby mentality it is how they treat their business and often they do not get the success they would if they treated it like a business from day one. Our mindset is so important in these things as you know.
Thanks for your comment Sonia. I hope you are having a good week.
Sue
Dee Ann Rice says
Sue,
Finances are so important and many times businesses do not pay enough attention to them. I have a degree in economics and it never ceases to amaze me the businesses that know nothing about either finances or economics. I think that is why many businesses eventually go under.
I will admit I am not as good as I should be at organizing my receipts which means I have to spend a lot more time at tax time to get everything in order.
I think the most important step entrepreneurs can do is treat their business as a business from day one. That gets you a long way down the right road.
Very informative post.
Dee Ann
Sue Price says
Hi Dee Ann
Now I learn something more about you every time you leave a comment. I did not know your have a degree in economics. You certainly are a lady of varied skills and experiences.
Spot on many businesses do not know the first thing about finance or economics. I do not think business owners need to have degrees like we do but they at least need to find someone they trust to help on that front. Many do not and yes I agree that is why many fail.
I am not perfect at keeping our records either Dee Ann and I know this stuff backwards. I do try to keep on top of it though as it is a big job to catch up.
Thanks for your comment and have a great week.
Sue
Jason Harrison says
Hi Sue,
This is probably one of the most informative business posts I have seen. Unlike many other business posts, you are trying to help us, instead of trying to sell us your product every other paragraph. I really like how you organized this in Tips for business improvement, it is a very organized thing that many people tend to ignore.
Thanks for the tips,
Jason Harrison
Sue Price says
Hi Jason
Thanks for finding my blog and for your feedback. I really appreciate hearing what you have said. Yes I do try to educate people and share my knowledge.
You have a great day.
Sue
Spencer says
Hi Sue.
These are great tips. Especially the extra bank account. It is much easier to determine the success of your small business with that and you’ll usually never have to worry about having enough money to pay bills if you’re decently successful. It definitely helps a lot. Thanks for posting
Sue Price says
Hi Spencer
Welcome to my blog.
The separate bank account for business makes it so much easier to know what is businesses and as you say we can then see the results of the business much more clearly.
Thanks for your comment.
Have a great week.
Sue
Joe says
Great information! I like your suggestion about treating it like a business from day one – that is important – just like exercise – start with good fundamentals and it will make the rest easier.
Sue Price says
Hi Joe
Thanks for your feedback here. Thanks for finding me.
Have a good day.
Sue