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If you’ve listened to Priority Pursuit before, you’ll know there are three keys to building a successful small business: having a great product or service, offering an incredible customer experience, and using a marketing strategy that actually works.
Well, there is a fourth key that, in all honesty, we don’t discuss on the show nearly often enough: managing your finances.
That said, we are thrilled to have Linda Karressy, fractional CFO and founder of Insight Financial Group, on this week’s episode to dive into this critical aspect of building and running a successful business by sharing five practical steps to manage small business finances and increase your cash flow.
What is a Fractional CFO?
A fractional chief financial officer (CFO) is a part-time or contractual employee who takes financial oversight off a business owner’s plate so they can focus on different aspects of their business, such as creating new products and services.
This position works with the office manager or bookkeeper to ensure the day-to-day financial operations of your business run smoothly. On top of that, they work to keep track of your numbers—including cash flow, revenue, and expenses—on a regular basis and communicate any specific findings to management.
All of this is crucial in managing the finances of your business and can help you prepare for tax season.
Fractional CFOs and Cash Flow
Linda explains that bringing on a fractional CFO provides another set of eyes dedicated to overseeing your business’s finances, specifically your cash flow. For small businesses, cash flow is key for keeping the doors open. In essence, this refers to the money coming in and going out of your bank account.
More often than not, business leaders are taught to focus on reporting revenue, and while Linda acknowledges that’s important, it’s also crucial to understand that those numbers don’t often reflect the actual money coming in and out of your business. A fractional CFO can help you better understand this financial nuance and how it influences your business.
When to Consider a Fractional CFO
While any small business could benefit from a fractional CFO, Linda suggests that it’s especially time to consider adding one to your team when you hit the $1 million mark. She explains that at this point, you end up having more layers within your finances that may be difficult to navigate if you aren’t familiar with the processes and nuances.
As a business owner, once you’ve hit that revenue mark, you’re more than likely going to be focused on other aspects of your business. With that in mind, trying to figure out the intricacies of your ever-changing finances on top of your already long to-do list may be overwhelming.
And again, this stage also brings new layers that you may not be equipped to sort through. You may find yourself asking new questions that hadn’t come up beforehand—such as how to handle payroll for your growing staff or how to finance your new product.
A functional CFO can help you gain a better understanding of what is happening to your finances as they change and become more complex thanks to your business growth.
What are some common issues & fears small business owners may have when handling their finances?
While you aren’t expected to know and understand everything that goes into your finances, a lot of small business owners experience anxiety and fear when they don’t. Unfortunately, this can lead to some common issues.
Personal Finance Habits
One of the biggest underlying issues Linda sees small business owners have is that oftentimes, their personal finance habits overflow into their business. Consider how you handle your personal finances. Are you tracking your money? Is your budget reasonable? Do you add to your savings account?
It’s crucial to consider your personal finances as that often reflects how you will or are managing your business finances.
Money Mindset
You need to have a well-balanced mindset about money. Too often small business owners don’t have a great relationship with money—mostly because they’ve had poor experiences in the past which spurred them to become entrepreneurs in the first place.
However, Linda explains that you really need to understand money and the purpose it has in your life if you want to manage it well. And, this is different for everyone. A six-figure salary may be the popularized vision of success, but that’s not the case for everyone. Maybe you are comfortable making $50,000 a year instead. It’s all about what fits your vision and purpose.
You also need to understand the basics of your finances. Now, this doesn’t mean you need to stress and get an accounting degree. In fact, according to Linda, all you really need to know are your business’s key metrics—expenses, top products, etc. The goal is not for you to be an accountant, but to be confident in the fact that you can learn the basics of accounting so you can have a better understanding of how your finances are doing.
What are some common financial mistakes that small businesses make?
No matter the size of your business, there are a few financial mistakes that small business owners make when they’re not careful.
Not Separating Personal and Business
One massive mistake business owners make is not separating their personal and business finances. Linda makes it clear that you should have separate bank accounts and names for both. You can do transfers between the accounts if needed, but the separation should be clear and well-documented.
This helps keep all of your finances clear and orderly, which is especially important when tax season comes around.
Not Having Efficient Recordkeeping
You need to have a system for where you keep all of your documents. Nowadays, we tend to receive a lot of documents digitally—usually over email or your phone—and rely on those systems to house them. However, it’s important to gather and keep all of these documents in one organized location.
Whether you use Google Drive or some other cloud storage, keep everything organized in folders and make sure they get regularly updated. Even if you use accounting or other online software, be sure to download your documents and store them. This includes contracts, tax forms, payroll reports, and more.
One day you’ll need that information. This way, you’ll know where everything is.
Not Monitoring Your Cash Flow
Some business owners don’t look at their bank account, often because they’re afraid to.
However, Linda recommends checking your bank account once or even twice a week, no matter how much you’re making. When you do so, consider if what you’re seeing matches what you were expecting. If it doesn’t, you may have an issue to account for.
While you may already have an accountant or bookkeeper, ultimately it’s your responsibility to know your finances. So, be sure to look over your accounts and make sure everything is going how you need or expect it to.
This also goes for credit cards. Unfortunately, we currently have a lot of fraud going on. Even if you don’t use the credit card often, be sure to go in and look at it often to ensure nothing funky is going on.
Regularly monitoring your cash flow is the most efficient way to manage your small business’s finances.
Not Looking at What is Actually Making You Money
If you have multiple products or services, you need to take the time to see which ones are actually bringing in money. Otherwise, you could be wasting time and resources on a product that you may be passionate about but isn’t needed by the public.
What are some practical steps to manage small business finances?
With a deep understanding of the common fears and mistakes small business owners have and make when trying to manage their finances, Linda has developed a five-step framework to help small business owners more effectively manage their finances.
1. Recordkeeping
Whether you’re just starting up or have made $5 million, you need to organize your documents in one easy-to-reach location. You will more than likely need to access these documents for things such as applying for loans and submitting your taxes. By having them all in one place, you will be able to access them more easily.
2. Separate Business and Personal
Again, this can have a major impact on your small business’s finances—especially in regards to taxes. There’s a tax benefit to being a business owner. With this in mind, be sure to talk with a tax professional to ensure that everything is as clear and separate as possible.
3. Keep an Eye on Cash Flow
Most small businesses are taught to focus on the big picture of their finances. However, Linda shares that you need to be double-minded and not only consider your revenue but also your cash flow. By doing this, you can have a better understanding of your finances and be able to better talk about it with different audiences.
For example, if you’re looking to get a loan from the bank, you’ll likely need to share your profit and loss statement and balance sheet. But, if an employee asks for a new piece of equipment, you need to look at your cash flow.
Likewise, when you focus on your cash flow, you’re better able to utilize it. Once you understand what money you actually have, you have the chance to better invest it within the business—which is why it’s so important to look at your bank account regularly.
While general revenue is important, the world runs through cash. If you choose to not keep this in mind, you’re ignoring a major part of your finances.
4. Use Accounting Software
You need to have accounting software to help you keep all of your finances straight and organized. There are different types of software available, such as Wave, QuickBooks, and Xero. Once you decide on an accounting software, Linda suggests you have someone train you on it. After all, tools are only helpful if you know how to use them.
5. Plan for Taxes
One of the most overwhelming elements of a small business’s finances tends to be taxes. This is why Linda recommends having a quarterly tax planning session with a tax expert. This will help you stay on top of what will be expected of you when tax season comes around.
If you’re interested in learning more practical steps to manage small business finances, be sure to listen to this whole episode (at the top of the page or wherever you listen to podcasts) to hear more about Linda’s CFO expertise. If you’d like to connect with Linda, you can check her out on LinkedIn and YouTube or visit her website: https://insightfinancialindy.com/.
Links & Resources Mentioned in This Episode
- Read “The Psychology of Money”
- Visit Insight Financial Group’s Website
- Explore Wave
- Explore QuickBooks
- Explore Xero
- Receive 50% Off Your First Year of HoneyBook
- Try ShowIt for One Month for Free
- Learn More About Treefrog’s Small Business Marketing Resources & Services
- Join the Priority Pursuit Facebook Community
- Follow or DM Treefrog Marketing on Instagram
- Follow or DM Kelly Rice on Instagram
- Follow or DM Victoria Rayburn on Instagram
The Priority Pursuit Podcast is a podcast dedicated to helping small business owners define, maintain, and pursue both their personal and business priorities so they can build lives and businesses they love.
You can find The Priority Pursuit Podcast on Spotify, Apple Podcasts, Amazon Podcasts, Stitcher, and wherever you listen to podcasts.
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