Business Fundamentals Part V - Control Your Finances

Let's recap:

1. Decide what we really want from our business... the kind of business we really want to build
2. Take an honest look at what we have to offer clients and what clients are really looking for from us
3. Start getting students
4. Look like and be a legitimate business

Fundamental #5 is almost a warning. It is

Control Your Finances!!!

In so many ways, this is a very simple basic, foundational principle of life.

But specifically, here are 8 items to help you keep control:

1. Buy, install, set up, and use Quickbooks by Intuit
   I don't make any money on the sale, but there is nothing that makes keeping control of your finances easier than Quickbooks. It makes everything financial, orderly. It isn't just a check register. It keeps your books balanced, keeps your profit/loss current, and will even do your payroll.
   
   I don't advocate that you be the one who keeps it up to date. In fact, I think it's best if you don't because it will never be your top priority. But you do need to set it up and enter 2 or 3 months worth so that you know the process. Then turn it over to someone else whom you pay to keep it up either weekly or daily.
   
   
2. Unless you are a corporation, keep a business journal
   This is separate from Quickbooks. If you are audited, the IRS will ask to see your business journal. Quickbooks is not a business journal. What they want is a handwritten summary, done on a daily basis, along with the accompanying receipts.
   
   The easiest way to do this is to design a single piece of paper that has days across the top, then a place for your mileage and destinations, then below some blanks for amounts and what they are for. Keep an envelope for that week's receipts, then at the end of the week, after making your Quickbooks entries, fold up the journal (your piece of paper), place it in the envelope, and file it all away. You don't need it again unless audited.
   
   
3. Don't financially commit yourself to anything unless you can already afford it
   That means office leases, equipment, loans, personnel, advertising...nothing! There is a temptation when going into business to overspend on advertising. Most traditional advertising is a complete waste of money (See Seth Godin's book Purple Cow).
   
   Don't borrow money to go into business. If you can take a small office on a month-to-month agreement that you can afford even if you have no students, then do it. But don't take office space and hope you can get some students to pay for it.
   
   It can take as little as a few hundred dollars to get the business up and running. Get your cash flowing before you make spending commitments.
   
   
4. Charge enough for your services
   Educators are notorious for not charging enough. I tell people this all the time, but it is a hard lesson to learn until you have a financial crisis. If you are in business, it really costs money each and every month.
   
   When your heart breaks for someone who says they can't afford your services, you will find that most of the time (yes, there are exceptions) parents are making a choice about what they will afford. Most people have what is really important to them. If your services are important, most of the time people will find a way to pay for them.
   
   Remember this: without profit - not just breaking even - you will go out of business and not be around to help students...even if you are a non-profit company.
   
   
5. Know how much things cost you
   Keep track of how much your advertising costs vs. how much it brings in. "Do the math" before you set or change your fees. Use good ratios to set salaries. Don't overpay. By measuring, you can know what you can afford. And know what your bank balance is each week.
   
   
6. Pay your taxes and fees on time
   When you pay people, or pay yourself, make sure you set aside all the taxes, fees, and other payments. Set it aside when you have it. This isn't much fun, but it's lots more fun than facing audits or bankruptcy.
   
   
7. Build a cash reserve
   In business, "cash is king." You need cash to run your business so don't spend it all. You've got to spend less than you bring in until you have accumulated enough cash to keep things running comfortably.
   
   
8. Pay Yourself
   Even it is just $5 a month, pay yourself something each and every month. As you can afford it, pay yourself more. If you build a business without paying yourself, you will have a hard time the day you decide to sell it. Who wants to buy a business that makes no money for the owner?

By keeping "on top" of finances, you give your business the very best chance to grow. Very few businesses "take off" in a hurry. "Plant the seeds" of success and nourish the growth. You'll end up with a much stronger business that can sustain you and help students for many years.