Revv it up, Part 4: Money Talks
Finally, that 10 gallon hat in the back of your closet has a purpose to serve. You’re going to cover it in glitter, mod podge some dollar bills and the loose change you found on the sidewalk, and put that puppy on.
It’s time to talk money.
Put aside your previous notions about money, for better or worse. This chat is about business, and businesses need to make money. Since you’re not a greedy monster, I feel safe in saying that the more money you make the better. Because mo’ money = mo’ opportunity for you to do what you love and make a difference.
So let’s get down to brass tacks (I love that phrase, I really do). Business accounting is actually pretty creative, but it starts with the basics.
Expenses and Income.
Expenses are all the costs associated with doing business. I usually encourage clients to keep their businesses simple, therefore keeping expenses lean. Still, when you sit down to pencil it all out, there are usually more expenses than most business owners realize. So let’s start there. Expenses fall into 2 primary sub-categories: Operating Expenses and COGS (cost of goods sold).
Operating expenses are the basic necessities to keep your business alive. Whether you sell a dang thing, these will show up regularly. Examples would be web hosting fees, internet, electricity, annual memberships…you get the point. For these purposes, include your salary in these costs as well.
Write down all the expenses you can think of, or download this excel spreadsheet (spreadsheets, another thing I love sooo much) to easily track all your money projections. I find it helpful to login to my bank account and go item by item over the last few months to make sure I don’t miss anything.
These costs are your baseline and the absolute minimum you need to make each month/year. Take a deep breath and let’s move on.
Disclaimer: I am not a financial advisor and these are basic directions to help small business owners project for their business year. There are more details required for tax purposes and thorough financial planning that I’m not going into.
Then, there are the costs associated with making a sale, these are your COGS. Examples would be materials and packaging, fees from your merchant account or shopping cart program, contractor fees, etc.
List these out to get a clearer picture of your production costs. This will help you determine what you need to be charging, at a minimum of course (hopefully it’s way lower than what you ARE charging).
I always start with expenses because I think it helps people wrap their minds around the importance of money.
Income is what allows you to be in business. And this is where you need to be a little creative.
Whether you sell products or services, you will want to break down your offering into price points for the sake of projection. If you typically charge hourly, put some estimates together or average out what you bill for a given project. If you sell a wide range of products, review your last few months and see what your most popular sellers were…or do the same as above and create some averages.
Being cautiously optimistic, enter the first 6 months of your projected income. Look at your numbers (if you are using the worksheet I created, it will automatically calculate projections for you) and see how your income is stacking up to your expenses.
The first goal is to be cash flow positive each month. Once that is secure, you can get more aspirational (if you run a ___ promo in March you can probably sell #___ of “x” that month…)
The last part of this exercise is to look back at your BIG GOALS from last week, and make sure that you have the funds required to achieve them. In my book launch example, there are COGS like graphic design services, ad spend, etc. that you’ll need to plan for. Line up your MILE MARKER goal timeline with this worksheet to make sure the funds will be in the right place at the right time.
Seeing your numbers clearly is a huge help in planning and will give you a sense of purpose each month.
In the next post we will be pulling all of these steps together to create your BIG ACTION PLAN. Cheerio.