You’ve heard it before, and in many ways you can attest to it: “it’s all about mindset.” But did you know you can apply that way of thinking to handling your businesses finances as well?
We get it. As a small business owner, you’re overwhelmed by the many responsibilities being added to your plate each day, and spending time reviewing your finances just isn’t a top priority. You want to grow, but as far as your finances go, getting to a place of continual growth seems far from reach.
However, with a simple shift in frame of mind, you can take your business from where it is now, to where you want to be. All you have to do is get into the right financial mindset.
With the right mindset, you’ll notice managing your finances can be simple, straightforward, and practical. By following a few simple steps, you’ll be basking in the peace of mind that comes with a solid growth-focused financial mindset.
Master Your Cash Flow
Your cash flow drives your business, so getting it moving in the right direction will improve other areas of your business. When you know your cash flow is doing well, you can be confident other business areas are experiencing success.
The entrepreneur mindset involves recognizing that building a company isn't just a job. This is your opportunity to build significant wealth for you and those you care about. You need a long-term strategy, and that starts with how you'll grow the amount of money you have to work with without turning to loans or precarious shuffling of the books to feel like you're making more than you are.
There are five forces of cash flow anyone with an entrepreneur mindset needs to know. These directly impact cash flow growth when you manage them properly.
Tracking and Accountability: Track everything (we will explain this later on in more detail) and ensure it's organized in a useful way. This allows you to see performance in real-time when you're most able to adapt to the impact on those metrics and improve cash flow.
Accounts Receivable: A high amount in accounts receivable is inversely proportional to good cash flow. It can make it appear you have more money than you do. Your new financial mindset includes an efficient system to collect what you're owed, track the amounts, and know what's past due.
Budget Variance: An overoptimistic projected budget often includes numerous underestimations of expenses. At the same time, you may be spending more than you planned or need to in certain areas. When you understand where your budget and spending do not align through budget variance, you can more easily see these mistakes and correct them to increase cash flow.
Vendor and Partner Terms: Your vendor partners have contracted service level agreements (SLA). They provide this service, and you pay them on time. Failing to understand either side of the contract can lead to a reduction in cash flow. If they're not meeting their SLA, you have to spend more to pick up the slack. If you're not meeting your side of the contract, you may be paying more than you have to for raw materials, cost of goods sold, and services.
Product/Service Pricing: You need a pricing scheme that works for your business, and there's no one right answer here. Your pricing may be product-based, cost-based, value-based, or competition-based. Ensuring you're pricing correctly will increase the revenues you have coming in to improve cash flow.
Track Everything
Tracking the right metrics is beneficial for nearly every aspect of your business. It gives you a snapshot of the big picture, which in turn, allows you to see where you are experiencing success or what areas are in need of an adjustment.
Once you’ve begun tracking essential metrics, you’ll be able to create more accurate reports for a detailed look into your finances. Your reports will then turn into important information for making the right financial decisions moving forward.
Tracking everything sounds like a daunting task, especially if you are accustomed to doing it manually. Manual tracking is not easy and requires a lot of your valuable time. It can also lead to error and doesn’t give you the option of real-time numbers.
Instead, try turning to tools and systems that track everything and present information in an already usable form. This way you are getting reliable, accurate data in the form of reports that are meant to drive your business. By establishing a system like this, you’ll be embracing a key aspect to a growth-focused financial mindset.
Make Your Financials a Top Priority
While the goal is to develop peace of mind about your financials, you must never lose sight of those financials and how financial performance aligns with business success. Focusing on your financials throughout the year keeps you in the right financial mindset. Your decisions will always be focused on improving them, and because you're not looking at them in hindsight, you have the ultimate power to do just that.
Prioritizing your financials helps you avoid common problems that can discourage you or pull you further away from your goals:
Security issues, which could even include fraud from within your organization
Reconciliation
Thinking you're making more than you are because of good cash flow
Failing to separate contractors from payroll or understand the different costs associated with each type of classification
Not understanding when you're on an over-budget trajectory
Not using a Profit Loss Statement (P&L) so you know throughout the year where you stand, not just at tax time
Look Forward, Not Backward
While the past serves as an excellent point of reference, you should have your mind set towards the future. If you want growth, focus on growing. Create budgets and forecasts for the upcoming year that will help you reach your goals. This will lay out a groundwork for you to follow, so when you feel yourself slipping off track, you’ll have something to turn to.
But know that you do have to look back to some extent to look forward. You need to know how much you've made, spent, and retained. The problem is that many who think they have an entrepreneur mindset stop there, looking back--either with frustration or a pat on the back.
To turn your financial mindset into a forward-thinking one, dig into those past financials to:
Create a more detailed budget: Each year, your budget should get better and more accurately reflect what you spend and how you spend. Now, you actually know what you're working with and can put that money toward business growth.
Break down sales goals: Based on past performance, you should have an idea of acquisition costs and their relation to revenues.
Ask yourself questions to help you generate your projected revenue:
How many leads do you need to get?
How many new customers do you need?
How much money do they need to spend?
Forecast cash flow: You can better anticipate cash flow and leverage it to grow your business.
Work With a Trusted Accounting Partner
Getting into the right financial mindset can be tricky. Working with a trusted accounting partner will help you stay focused on growing your business and reaching your goals. They’ll help you track the right metrics, master your cash flow, make your financials a top priority, and look forward, not backward.
If you're struggling to change your financial mindset, turn to SIMPLY Financials PLUS. We bring simplicity, clarity, and confidence to your finances, so you can stay forward-thinking and grow your business.