SHEcorporated One Step Empire

Small Business Finance 101 - the basics you NEED to stay on top of in your new business. Ep 14 Season 2

April 06, 2022 Kristy Carruthers Season 2 Episode 14
SHEcorporated One Step Empire
Small Business Finance 101 - the basics you NEED to stay on top of in your new business. Ep 14 Season 2
Show Notes Transcript

So you started a business and maybe you are just getting set up, or you have been open for a little while, you’re starting to make some sales and you’re wondering what you really should be doing with your finances.

Unless you have some background or training in accounting, it can be a bit overwhelming to try and sort through what you could do, what you should do, and what you really NEED to do.

So in true SHEcorporated style, on this episode, we are going to make it simple for you, cut through the confusion, and lay out the basic financial tools you need to have in your business

There are a LOT of things you CAN do but these are the basic tools you need to get your business up and running, avoid any nasty surprises as you grow, and keep a handle on your businesses finances.

Whether you do the bookkeeping yourself or not, you need to understand these tools and be looking at them on a regular basis so you can stay on top of your businesses growth and financial health.

Michelle is with us on this episode, walking us through the simple steps you need to take and it really is easy – YOU can do this and you’ll be SO glad you did!



Links from this episode: 

Avoid these 10 money myths and get rich!  FREE DOWNLOAD

Find Michelle on Instagram: @ms.moneyandmath

Michelle's Website: https://www.msmoneyandmath.com/

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Visit SHEcorporated main site: https://www.shecorporated.com/

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Kristy: [00:00:00] So you started a business and maybe you're just getting set up. Or maybe you've been open for a little while. You're starting to make some sales. And you're wondering what you really should be doing with your finances. Unless you have some background or training in accounting, it can be a bit overwhelming to try and sort through what you could do, what you should do. 

And what you really need to do. So in true, she corporated style on this episode, we're going to make it simple for you. We're going to cut through the confusion and lay out the basic financial tools you need to have in your business. There are a lot of things you can do, but these are the basic tools you need to get your business up and running, avoid any nasty surprises as you grow and keep a handle on your business's finances. 

 What do you do the bookkeeping yourself or not? You need to understand these tools and be looking at them on a regular basis. So you can stay on top of your businesses, growth and financial health. 

Michelle is with us on this episode, walking us through the simple steps you need to take. And it really is [00:01:00] easy. You can do this and you'll be so glad you did. Let's get into it. 

 We are so fortunate to have Michelle Robertson with us today. Michelle is a wealth coach and certified professional accountant with a couple of decades of corporate experience. And her goal is to help you become financially fierce and help you use money to set you free. Hi Michelle. 

Michelle: Thank you for having me so nice to be. It's great to 

Kristy: have you here. Now, we're going to dig into the basics in just a minute about what every business owner needs to put in place. But before we do that, you've got kind of an interesting story and an unusual lifestyle. So why don't you catch us up on how you got where you are and exactly where you are 

right 

Michelle: now?

Well, the short story I'm where I am is that I live right now, 80% of the time in Rwanda. I am Canadian. I have a house in Toronto that I spend about 20% of my time. I am a recovering, corporate finance executive. I probably should have left my corporate career back in [00:02:00] 2017 because I think that was when my heart was not totally in.

Helping corporations to get rich anymore. but I was terrified. I was terrified to become an entrepreneur to step out of a really comfortable cushy salary and go it alone. And, and wonder if, you know, anyone would work with me or even what that looked like. So I jumped back into another, career with a foundation doing accounting and, that's where I.

To Africa. they do all kinds of work in development work in Africa. I got to come over here. A handful of times met my partner here. he's a Brit south African who's working here, which is why I'm here. And I was supposed to come here on an assignment and then the COVID happened. And then thankfully that job, let me go.

Thankfully. And I believe that was the universe letting me know I'd started to build my coaching business while I was there. And I think the universe was like, you're not doing it. You're not making the move. [00:03:00] So we're just going to, we're going to give you a little push off the ledge and hope you fly. and so I ended up coming over to Africa anyways, and I basically launched my business.

I work mostly with women, helping them to build wealth through empowerment and financial literacy. And I do it all. From six hours ahead of everybody else

my day has flipped, you know, like my mornings are my own and my afternoons and my evenings are more with. So to kind of be on north America's schedule. So it's kind of nice. The morning is a very nice time of the day. Right. So, right. 

Kristy: I so agree with you, the universe giving you a little push.

if you look back at every important move that you make in your life, or at least in mine, almost every one of them, it seemed like it was, uh, it was a bad thing at the beginning. And really it was just a push into the right thing. 

Michelle: Absolutely. 

Kristy: well, we're glad to have you here today.

And so what we're going to talk about is the basics that every business owner needs to put into place and how and why you should track your cashflow. And I think [00:04:00] these are really critical. When we start out, we don't know what we don't know. We do our best with what we have and you, you don't even know the questions to ask.

So I think this is really critical stuff to put out there. And if you're just starting out, these are the base, there's all sorts of things you could do, but these are the basic things that you really need to do. so what would the priorities be for new business owners in their first year of business?

As far as finances? 

Michelle: So, you know, I feel like, and you can say this about anything, even not about the finance part about it. It's all about systems. Right. And I'm even learning that in all the other areas. And I was kind of a little bit late to the draw, even with my finance systems, even though like, it's like the cobbler with the shoes, right.

Like, you know, my shoes are the worst kind of. But, it's all about putting systems in place. So I suggest that, first you get accounting software, it's actually free. you don't have to pay for it until you have people on your payroll and things like that.

There's some great products out there. And that, you get into a bit of, if you have to do that alone. And [00:05:00] initially when you're a brand new owner, you don't have a bookkeeper, you maybe don't even have an accountant. You're doing it yourself. the other thing that I would suggest that kind of ties into this as well is separating your.

bank accounts. So business bank, account, business, credit card, and depending, and specially depending on the type of entrepreneur you are. I mean, everything that I spend money on is basically on a credit card because I run my business basically online. And so it's just, who wants to go through their personal, statements from their credit card and try and pick out the things that are.

For the business, right. It just makes it so much easier. And I did not do that initially either. And it was a mess. And then you're looking at six months of expenses trying to make sure. Right. I can take that and even a step further. It's understanding what your tax requirements are.

So, I mean, we all know we have to file taxes and pay income tax and, you know, but it obviously, as an entrepreneur, [00:06:00] it's a little bit different because initially you won't. probably pay you won't pay income tax at source. And when you're an employee, your employer deducts it from you. And so understanding, like, do I need to charge, do I have a sales tax, depending on where you are states provinces, we all have different tax rules.

If you're providing a service, you probably do have some kind of tax at a certain threshold that you have to start charging. And also working with an accountant can also help you because. If you're just getting into this world, you don't know what you can write off. Like what is a business expense, what isn't, and what you don't want to be doing is leaving money on the table, where you're paying tax.

When you don't have to, when there are things that you can be, writing off. so those are kind of the really boring things I would say. we'll talk about cashflow in a minute because it's super important, and run rate, but. another, and this is a mistake I made and I should not have made this mistake because I've been coaching [00:07:00] companies on how to do this, but you have to make sure you set aside money for income tax, depending on where you live and how your government, your revenue.

Function, if you're in your first year of business, they don't charge, they don't charge you. Cause they don't really know you're doing it. And then depending on how well you do then potentially the next year, they'll put you on some kind of installments. But if your business is growing rapidly even if you're paying installments that it might not be.

and so really for me, it's, what I'm trying to do. And I didn't do very well. Last year was 25% of all my revenue. And that's going to help you with that sales tax part two that you just put aside and if at the end of the year, you put away too much. Well, that's just a win Bonus. Exactly.

you can use that for something. 

Kristy: Just a couple of thoughts on the separate business account, I think is genius.

And I think most people. don't know to do that from the start, but if you do have a bookkeeper, it saves you a ton of money because they're not [00:08:00] picking through China's separate your personal, right. That takes them time to do, Every single transaction.

and honestly, if you don't have a fairly, good, basic grasp on accounting and bookkeeping personally, I think that's one of the first people you should hire is a bookkeeper. As you said, you could be leaving money on the table quite often. It's going to save you as much as it costs you.

And you can't, you can't do it wrong. It needs to be done properly for your taxes and that sort of thing. And the other thing with having that separate account is it makes it so much easier because you don't have to have every receipt. You don't have to have. I mean, you should have them for audits.

Should you be audited, but at the end of the year, at the end of the month, whenever you're doing your books, you're handing that over your bookkeeper. If they're doing. They have everything in front of them on that one sheet that you don't have to try and remember everything that you did, a month ago, two months ago.

Michelle: And the other part of it too, is you probably don't want your bookkeeper looking in your own personal bank account, either seeing your transactions, right? Like those are my mortgage payments, you know, like or whatever it is. 

Kristy: We're not going to talk about line three, [00:09:00] but 

Michelle: you're, you know, and to go on a bit of a tangent, you're absolutely right.

I have struggled with this a little bit, you know, you try to do it all because you're like, I'm not making very much money yet. I don't want to outsource, but I've really learned in. Six months and you're right. I have not outsourced my book, keeping it, but that's partly because I'm like, Michelle, you can do this in about seven minutes.

Right. So it's almost more, like pride kind of thing. but yeah. outsourcing certain things because it just frees your mind to be able to create what you're trying to create and not getting bogged in the admin, whatever that is, whether it's the finance, the bookkeeping, or if it's your administration.

I just feel like it's uncomfortable at first. 

Yeah. And when 

Kristy: I started, I had that same mindset of, I can do this myself. There's software that, you know, this, I should do this myself. And I did, I did for the first six months. And, I know that that is not my zone of genius. I don't like it. I'm not good at it. I should [00:10:00] not be doing it.

And, but I struggled and I struggled and I, I, I would put it aside and it might be. Stack of papers and I would keep pushing it away because it was just, I didn't want to do it. and then when I wouldn't do it, I would do it all wrong. So I finally hired a bookkeeper that was the first outside, help that I got.

And honestly he had to redo it all and he's, and he was so kind, he such a sweet man. And I said, trying to have, how did I do, like, how bad was it. It wasn't all wrong. That was the best he could do for me. And he's a very, very kind person. So, so he redid it and he did it moving forward and just, you know, it probably took him an hour.

What took me 10 hours. So why, why am I wasting my time doing that when somebody else can do it so much quicker and better? And 

Michelle: when you have reporting requirements too, like sales, tax remittances and things like that, if you're late,

they're not in the business to lend anyone any money. So if you don't file and pay on time, The [00:11:00] penalties are severe and that's like income taxes, that's sales taxes, you know, there's no incentive to not pay on time. And so that's just an whole nother reason because when you hire someone that does this, they know all these debts.

Yeah. You know, if you hire someone in jurisdiction, like they'll know exactly like, oh yeah, that's going to be quarterly for you. You know, we've got to get that filed 30 days after the quarter ends, like that kind of thing. 

Kristy: And everyone has their own, and that applies to whatever yours are.

I mean, maybe it's not finances, maybe you're great at bookkeeping. Maybe you're great at finances. Maybe there's other things that you're really not good at that you should be passing on to someone else. But, I think that's a big one. we've got a separate business account. we need a system, whether it's online software, whatever it is to do our accounting.

we need to set aside money for our own income tax. And business taxes as well, and get a basic understanding of what the taxes are in our area and in our particular business, whether we're collecting sales taxes and need to remit that back to the government, whatever it happens to be that our taxes aren't.[00:12:00] 

Michelle: And then the last one, before we talk about cashflow, but this kind of plays in a little bit to cashflow is having an emergency fund. And I talked to people about this personally, right? With people about their personal finances. Most people have probably heard, do you have an emergency. A few months.

that's a hard thing to build initially. cause you feel like, well, I have nothing, you know, when you first start to build a business, you're like, there is no money and I get that. and so it does take some time, but it is good to just to have. and I think if you're pushing the money away for taxes and you're putting some money there, then in some ways you're kind of doing a little bit of that, but it just helps when you're, especially when you're renting.

Maybe they, they probably start and they are quite unpredictable. Right. and they may remain that way to be honest. And so having a fun so that if something comes up or, some client project falls off or some big job that you thought you were going to get doesn't happen. And then you've built in like that is sorted to help you [00:13:00] keep the lights on per se , I have used a cashflow projection. For my entire adult life. This is when I had a full-time job and my salary was pretty much the same every single month, I think it's important personally, but this is a tool that you can use and should use for, it was really built for businesses.

Right? If you can start really thinking about. Forecasting your revenues and your expenses. Don't worry about the accounting side of it that, you know, I mean, they CA they almost are the same almost when you're a new business owner, because it's basically almost on a cash basis, but Cassius king, you know, everybody hears that.

And you want to create some kind of spreadsheet that gives you whether it's monthly, depending on what your sales cycle is like, where you're like, okay, next month, this is roughly, and it may be depending on what kind of business you have. It could be units. It could be sales in an online store.

There's a [00:14:00] million different types of businesses. So for me, it's like when I sell people into my program, you know, my 10 week program, I am constantly forecasting revenues and your expenses are probably a little more recurring. So it's easier to kind of be like, everyone can strike a budget.

We all know. Okay. So what are your monthly expenses? And really it's just, when are you going to pay those? That's the only difference between doing a budget and a cashflow, right? So you're just plotting in a month. What am I going to have to pay out? What are the regular things I have to pay out and then really spending time on that revenue forecast.

So you can start to see where you're going to have opportunities to potentially invest more money back in the business, pay yourself, or where you might need that emergency fund or where you need to do something different. Right in your sales cycle. so it's a hard thing to demonstrate on a podcast.

Obviously that's how that works, but, become friends with [00:15:00] Excel and get a spreadsheet out. However, your sales kind of work in batches. You gotta start thinking about, plotting that in so that you can start seeing all in three months, the way things are trending, 

that's when I can start to pay for this VA for this or that, or we can upgrade this, you know, we're constantly evolving our businesses right. From zero to 10 years. And so without understanding. Your cashflow you're going to have a hard time understanding if you can eat, but also, where you can put more money into the business where you can invest, there's like, Different ways that you're investing in businesses. So, and that's 

Kristy: going to be hard to start with. It's going to be hard to forecast when you're first starting out, right? Because it's growing and changing and you're learning. But the more you do it, the better you're going to become at forecasting, what those incomes are gonna be.

Michelle: exactly. I mean, even in my first year I launched a program and I thought, okay, well, I don't know how many people are going to sign up for this program. And so [00:16:00] then I'm like, oh, okay. The first time I got seven people and I was like, oh, all right. And so then when I went around to launch it again, I was like, okay, well, they'll probably be somewhere between four and eight women.

Eight was kind of my cap. And so I just started in as soon as I would book someone in, I might sell it a month before, right before I'm actually delivering. And even before, sometimes people are paying partially upfront maybe some of the money isn't coming for three months, right.

And it's just about, columns on a spreadsheet and just slotting those numbers in roughly. And then it just gives you an idea. I mean, for me, if I didn't, I look at my cashflow every three days. I just, I wouldn't be able to handle it if I didn't have that view and seeing, okay.

So if I don't bring in another dollar, when do I run out of money? That's what I want to know. Right. Because that's what it's going to 

tell 

Kristy: you. And also critical when you're getting started, even though it's hard to anticipate exactly what that income is going to be, just mapping out those expenses alone, [00:17:00] because this is new to you and you have, maybe you have your quarterly sales tax that you need to pay back to the government.

And then, you know, you got your income tax coming in April that you need to pay and you know, and no surprises, right? You don't want to get there two to may and suddenly, oh, I need, you know, $10,000. Where's that coming from? 

Michelle: Right. Yeah. Yeah. That's a great point actually, with these quarterly things.

Those are the kinds of things that are so hard to manage, right. When you're like, oh my gosh, now I gotta pay the government again. You know, that kind of thing. Whereas if you have that slotted and even if it's an estimate, at least you haven't earmarked for it and you might be wrong, it might be more, but at least you're not.

I didn't have it at all. And then it's a complete surprise when you get to that month, right? Yeah. And I find too, and this is a little bit off finance, but. You know, I was death by a million subscriptions. When you run an online business, you have a lot of subscriptions. I probably all businesses.

There's some kind of subscriptions that you have to have and you go down the road with one, and then you [00:18:00] realize, oh, I think I'm going to consolidate and managing and having awareness of what those things are and being able to plot them out and being like, is this the best way forward? Is there, you know, a different solution?

I mean, I teach this one, I explained to people to learn about the awareness of their own spending. Right. It's, it's the same thing inside your business. Are you aware of what your spending is? Is it all value add? when it's new, that's, really important. and so when you do that exercise and you're conscious of it, it really helps you, I think, to make good decisions. 

Kristy: so definitely, one of the first priorities for the first, the first year of business is to set up some kind of cashflow, spreadsheet and start tracking that.

And you're not always going to be right, but whatever you got on that sheet is going to be better than the no sheet at all. For sure. And the more you do it, you're gonna get better and better at it. 

Michelle: End to take that a little bit further than cashflow. I like to talk sometimes with, entrepreneurs and businesses about run rate.

and that's [00:19:00] really like your break even. So if you, depending on the type of business that you have, you might have certain expenses that you have to pay. To keep the lights on. If you rent a physical space, there's so many different things, right? So take the variable cost. If you make a widget, you only incur costs.

If you're making 10 widgets that's variable thing, but you have to have there's fixed costs, right? Maybe their salaries, there's bricks and mortar, whatever it is for you, understanding what that run rate is of what is my break, even like, what are my fixed expenses in a month? And what do I have to make?

And if you know what that number is, then, you know, okay. I, if I don't bill. Whatever that number is for you in one month, I am losing money. Sometimes that's the case. We have to like invest money to make money. when I used to work in corporate people always used to say to me, I was always like, come on, we've got to like tighten up and they'd be like, Michelle, I spend money to make money. And it's 

Kristy: true. That was the marketing department. [00:20:00] Wasn't it? Oh, absolutely. It 

Michelle: was always right. And then you've got corporate being like, we need better margins, you know, but it is true. Right. But it is good. If you can understand roughly what your break even is, then it's going to help you with cashflow.

cause it's like, oh, if you have that number in your head, you'll be like in a month, you'll be like, ah, all right. Every dollar we make after today, Is profit or potentially profit. Depends if you have variable expenses, but again, it's just understanding that, part of your business, 

and, 

Kristy: and just a side note, if you do decide to get a bookkeeper and not do that part yourself, you still need to understand all of this. You still need to be looking at all of this, just because you have a bookkeeper putting information for you. You still need to be getting those reports so that you can see what's going on in your business and really understand where your.

Anything else from the financial perspective that we want to make sure in that first year that we're looking at, or we've [00:21:00] got it all pretty much.

Michelle: those are the big, you know, again, you can, you can go deeper on pricing, strategy and products and things like that. some of that is mindset and some of that's marketing, right? That's what will the market bear? but I think from a. Managing the backend. I would say I get automate, automate, automate that's in your whole business, but as much of this, as you can automate or, give to someone else the better.

and again, just understanding and being aware of what your responsibilities there's a lot of. When it comes to managing money, whether it's your own money from like a personal perspective or a business, a lot of people are very, we weren't taught in school, right. How to manage. So people like I'm not good with that.

So I can't, and that is a fear. So not to get into a whole money mindset conversation, cause that's a whole conversation on its own, but you can do it. and you're not in business because you're volunteering your time. I mean, you're [00:22:00] passionate about something. You probably have a beautiful product or amazing service that you're super passionate about, but it also has to make sense.

For you. one of my favorite sayings, and I say this to all my clients all the time, what you measure moves, So if you are leaning into your finances and you've, you know, and I get it, you're going to go to this account and then you're going to feel like an idiot, but there's no reason to feel like an idiot.

You didn't go to school to learn about taxes. You just need to understand your basics, know what you're good at. but. you have to lean into the finance side of your business as well in order to make it thrive. So that you can be profitable.

And so that you can actually have a viable life doing what you're doing. so you can't put the blinders on and just think it's all going to be okay. 

Kristy: There's a lot of guilt and shame attached to finances, and nobody really talks about that. And everybody thinks they're the only one.

we talked about this a few episodes ago, with Pam Pryor as well. And. Everybody has a money story [00:23:00] that they think is the worst story that's out there. We all have it. So if, that's, what's pushing you from, getting a handle on your finances and putting the systems in place and looking at them, You're talking to a professional about how to get it all in order.

Just know that you are not the only one. They have seen this a thousand a million times over, and everybody has a story. And the only way to get past that is just to face it and get in front of it. 

Michelle: And I'd say, most people are more like that than they are. If that makes sense. all of my clients are between 30 and about 55 years old and we all were brought up by the baby boomers and they were brought up by parents that went through the depression And so there's this, whether you, your family had money or they didn't, they certainly didn't talk about. Right. As you said, it's this taboo topic and then no one was taught about it. And so you're absolutely right. There's so much discomfort about it, but I tell you when people [00:24:00] actually lean into their finances and I witnessed this all the time, it's gets very exciting when you feel in control and you feel like you understand enough, but you're gonna have to be a little bit uncomfortable initially to get there.

but there's. Lots of support but it does require a little bit of vulnerability and being like, I don't really understand. There's lots of things I don't understand too. And it's like, yeah, you're going to like sales and marketing, like for me, right? Like that's where I'm spending all my time learning.

So , It's okay. It's okay. That you don't know.

But you're going to want to know in order to build this business that ultimately what's your, why we're all doing this for lots of reasons, and I'm sure one of them is that you can have this beautiful life, with the financial freedom of that as well. Right. 

Kristy: Michelle has got a great download available for you. It is, avoid these 10 money myths now and get rid of. Which I love. So that's on her site and we're going to put the links in the show notes. So if you're on a platform where you [00:25:00] can't see the show notes, you can actually go straight to our podcast site, which is one step empire.com.

And we've got all the episodes, all the notes, all the links we'll have Michelle's, link there. And you can go grab that free download, which is full of, really fantastic tips. Michelle. I really appreciate that fantastic advice for new founders. One thing that really doesn't get talked about enough, so I really 

Michelle: appreciate you being here.

Oh, thank you so much for having me. It's a, it's an absolute pleasure to be able to share with everyone.