I asked Melanie to guest blog on here today to help you get your money side of things sorted out. so many beauty business owners turn away from looking at the real numbers of business from fear or just not knowing where to start.
Im going to be completing honest with you all, I used to feel stressed and out of control any time I had to talk numbers. I’m talking sick to my stomach and not being able to breathe kind of fear. It was ridiculous now I look back on it, because as soon as I took control and started to really get personal with my figures I realised I held the power in my own hands. As they say, knowledge is power. And it really is when it comes to knowing what is coming in and out of your business.
Once I got comfortable with it all I could see I had nothing to fear, we were actually growing in revenue every year and I was able to see where I could cut the fat to make more profit, happy days.
Below is Melanie’s 5 Steps to getting your cashflow sorted out.
Cash flow can be one of those scary “accountant” type words that make even the most seasoned business owner shake in their boots (or sparkly-yet-comfy flats in my case). When you understand the basics, it’s not nearly as frightening as you might think.
Cash flow is just…the money coming into your business (sales) minus the money flowing out of your business (expenses + liabilities like credit cards and loans).
While most of us would like to bury our heads and leave the cash flow stuff to the experts, you must understand it. You don’t want to leave this one to chance or hopes and prays, and it doesn’t need to be complicated. The success of your business and your ability to pay yourself all rest within understanding your cash flow.
So here goes…five steps to keep you in the know when it comes to cash flow
1 – How much do you want to pay yourself each month?
People are often surprised when I am talking about cash flow, and I ask this question first. It’s the starting point to figuring out your sales goals, and it will give you a target to work towards.
Without a regular weekly or monthly pay hitting your pocket what’s the point of being in business? You want a return for all that hard work. So figure out what that number is and write it down!
2 – Know how much it costs to run your business
Eck.. not many business owners love diving into expenses, but you need to know what you’re spending to run your business. All those products, insurance, website costs, banks fee etc. add up fast.
If you can’t quickly figure this number out by running a report if you use a bookkeeping program or looking through a bank statement. Each month keep a running list of everything you’re spending money on.
You can now take the number you’re aiming to pay yourself at tip 1 and add that to your expenses. Keep this number handy, we have more to add it!
3 – What do you owe?
We don’t just want to make money; we want to make money and be debt-free. That means earning enough to pay off any loans for equipment, computers or supplies that you might have used. It also includes any credit cards you have been wracking up with business expenses. How much do you need to pay off each of these every month?
Let’s add all of this up; the amount you want to pay yourself + the amount you need to cover expenses + the amount you need to cover loans and credit cards (liabilities)
You now have a goal to work towards each month that will allow you to pay yourself, cover your cost and get you out of business debt – easy right!
4 – Separate business money from personal money
To keep your cash flow super simple and easy set up a bank account just for business transactions. Doing so keeps the tax man happy and keeps your records clean and easy to understand. If you’re a sole trader, it doesn’t need to be a business bank account; it can be a personal transaction account. If you’re a company or trust, you need a designated business or trust bank account.
5 – Track your numbers every week
It sounds boring but get into the groove of tracking your sales each week and seeing how close you can get to your business sales goal. The closer you get, the more likely you are to push for that extra sale or that product or service add on that gets you to your goal. Hitting that goal also means you get to pay all your bills and pay yourself! Win win!
So this is managing cash flow? Yep! Pretty much. I could complicate it to give you a more in-depth understanding, but honestly, this is all you need to get started. Once you have this simple cash flow system nailed and you’re hitting your goals each month (paying yourself, your expenses and your debts) you can uplevel your learning to grow your business even further.