The Missing Element When It Comes to Fin Lit for Femme Business Owners
Episode 707: Show Notes
We know that so many business owners, at all stages of their growth, do not understand their finances and we can see how much it affects their businesses! We want to talk about what understanding your numbers will do for you and why it’s such an important thing to prioritize. Often, the anxiety when discussing finances is rooted in a lack of financial literacy and the attachment we have to money that results in avoidance.
Sometimes these kinds of conversations will be uncomfortable, but that doesn’t necessarily mean that they are bad. We want to remind you that our mission at Boss Project is to equip more women and femmes with the financial knowledge that they need to build a sustainable business that supports them financially and soulfully. These things are only possible with a level of financial literacy!
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The One Cash Flow Rude Awakening You Need to Have
Our conversations with clients almost always start with financial information. Without that financial information and history, it is very difficult to pave the way forward for the business. We want you to understand the difference between sales, contracted revenue, and collected cash. People often get into trouble because they focus on what their sales are without understanding what revenue is flowing in and out of the business.
For a long time, we assumed that income was going to come in and we did not even consider or plan for the inevitability that sometimes, it just doesn’t. Now we have learned our lesson and we want you to budget for a higher default rate and be on the conservative side so that you are prepared for the possibility that income may not come in.
How We Learned (the Hard Way) About the Money We Need to Spend to Make Money
When your operational expenses start to grow and you don’t have a firm understanding of cash flow you are going to have a massive financial and logistical problem. In lower-priced or one-to-many offers, you need to take into account how much you’re spending in order to make money back. That amount can be incredibly unpredictable and, while we know that the reality for many businesses is that you have to spend cash in the hopes that you will make money in the future, we want you to be prepared and have enough cash to carry you through.
Another dangerous assumption we see people make is that they think hiring to expand capacity will make them more money. Through hiring, sometimes your sales will grow, but not always and it can be very frustrating to exert as much effort as is necessary to onboard, train, and mentor the new person before you get even a percentage of that return. You will even have to sacrifice your work to get these people ready and if you’re not accounting for it, it can become problematic. You need to weigh up the pros and cons of hiring before making decisions that can impact your business financially.
Two Simple Things You Need to Understand to Start Taking Control of Your Finances
We are not going to ignore the fact that some of you don’t understand what a profit and loss (P&L) and balance sheet are, but these two documents are incredibly empowering and when you have them set up, you will look at them daily! P&L represents all of the cash collected income coming into the business and all of the expenses that went back out and the balance sheet represents the assets and cash value of your company.
If you aren’t looking at and interpreting these documents, you can start to become very reactionary. We don’t want you to feel alone in the lack of understanding of some of these concepts because you are focused on delivering or selling a service. There is not enough educational bookkeeping experience that is specifically tailored to individual businesses and that is why it is so important to do cash-based accounting to educate yourself on your cash flow. We want you to avoid the inaccurate recording of finances so that you don’t have a false sense of your business’ finances or pay incorrect taxes.
How Bookkeeping Correctly Can Make You an Informed Business Owner
When bookkeeping is basic, it is not helpful! Sometimes we see a lack of division of sales and expenses being recorded at too high a level that you can’t even see what you’re spending. We aren’t saying that you have to record these things in exceptional detail because that may not be productive either, but it needs to give you enough information to be able to go back to your records and see what was happening without having to pull up bank records.
We don’t want you to do bookkeeping for the sole purpose of paying taxes; the taxes are just a necessary part of your business. We want you to be doing bookkeeping to be an informed business owner. Working with an experienced bookkeeper within your industry will make you an informed business owner and educate you about financial information that will help you make decisions for the future. Send us a DM on Instagram so that we can connect you with resources to help you understand the finances of your business!
Quote This
It’s really important to do cash-based accounting so that you have a real understanding of your cash flow.
Highlights
The One Cash Flow Rude Awakening You Need to Have. [0:13:51]
How We Learned (the Hard Way) About the Amount of Money We Spend to Make Money. [0:16:36]
Two Simple Things You Need to Understand to Start Taking Control of Your Finances. [0:22:45]
How Bookkeeping Correctly Can Make You an Informed Business Owner. [0:27:56]
Today’s Guest:
Abagail & Emylee
The Strategy Hour Podcast
The Strategy Hour Podcast is a twice weekly show hosted by Abagail Pumphrey and Emylee Williams, the founders of Boss Project. Join us for semi-ranty biz conversations for service providers looking to ethically grow their agency businesses. Episodes cover everything from lead generation to leadership mindset to team culture and beyond.
Key Topics:
Financial Planning, Financial Literacy, Cash Flow, Statements, Bookkeeping
