As you finally start to enjoy the success of your business, it makes more and more sense to optimize that success by focusing on your finances. Believe it or not, it is actually quite easy to map out a plan that allows you to set financial expectations and intentions to really get the most out of your business. 

Here we review how to map out a plan that will empower you to steer your business in the right direction. By transitioning to a real-time accounting model, you can rely on accurate, real-time accounting reports to make better decisions. Through this proactive approach, you avoid spur-of-the-moment reactive decisions and instead understand your cash flow swings so you can anticipate challenges and optimize financial performance.

Real-time accounting begins by allotting your revenue to the three key areas that impact your business the most:

1. Operating Expenses Account
2. Payroll Account
3. Savings Account

With these foundation accounts, you easily allot the right percentage of your sales to cover the necessary cash requirements, while maintaining a savings account to maintain cash flow stability. You create a system that avoids costly surprises, and you are always in a position to cover your obligations while working towards making more profits. Once you stabilize your finances, you can add an account for taxes, and one for profit so you cover all bases.

Your new accounts allow you to take a proactive approach to finances. You can learn to decipher the most important reports that will provide valuable insights that power your decisions and allow you to improve your profit-making skills. With regular reviews, you form excellent accounting habits that fuel your success. Key reports include:

• Profit and Loss Statement
• Income Statement
• Balance Sheet
• Cash Flow Statement
• Profit and Loss by Customer
• Profit and Loss by Job

When you learn how to understand your reports, you are always poised to spot opportunities, cut off possible shortfalls and remain financially sound. When you work with accountants for small businesses, you can add an extra pair of eyes to offer additional input that keeps you focused.

Digging deeper, your accounts help you understand the right percentage of your monthly income to allot to your expenses. Your accounts offer guardrails to keep you on the road to success, yet they remain flexible enough that you can make adjustments to ensure you continue to meet the demands of the business. Your goal is to determine what percentage you would ideally like to have for profit, as this allows you to take a profit-first approach. 

This is possible if you map out your normal, average month so you can look at your fixed costs. You can then estimate the rest of the variable costs by taking an average across several months. Because you now work in percentages, you automatically fund each account without worrying about budgets. Instead, regardless of how much you earn in the month, the same percentage always goes into each account. Allocating percentages is a stress-free accounting system that manages expectations.  

As revenue comes in for those first couple of months, you continue to use the percentages you set, distributing the money once a week. You look at each account to watch for trends, and you can decide if you need to adjust your percentages. The beauty of your real-time, profit-first system is that you actually see how it works well for you. Because there is a percentage going to profits along with your expenses, you always see that account grow, too. You gain confidence knowing you have all bases covered so you can make informed decisions on the things you need to do.

This system also makes it easy to see your success. When it comes to business accounting, the numbers don’t lie. So, if you’ve been able to fund each account with the percentages you’ve laid out, this is a sign things are working for you. You know the money is always available in your small plate accounts to cover costs, while your business remains sustainable thanks to your profit percentage. 

However, if you find your accounts aren’t maintaining the necessary levels after a couple of months, you’ll need to adjust those percentages. The beauty even in this situation is you don’t need to spend stressful hours trying to discover where the issue lies. The balances in each account provide a clear picture. Is your profit account always over, yet your operating account is always under? This is a simple one-step fix by just shifting those percentages. 

In the case where you can see an account is consistently over, there are simple steps to take to get things back into balance, including:

Lowering fixed costs

What are the costs that are making the biggest dent in your account? It might be your rent, or it could be something like expensive software or commitments that aren’t necessary to your business. Rid yourself of these burdens so you can lower your fixed costs, and you can get yourself back on track.

Operating account:

Are there any areas where you might be spending money and not even realize it? For example, are there old subscriptions you can clean up?

Payroll account

If your payroll account is the issue, it’s time to look at your team and see if you are operating efficiently. Take an inventory of your people and see where you can save money without negatively impacting operations.

Profit account

It’s always tempting to keep your profit percentage high, but if you have issues in other accounts, chances are your profit percentage is too high right now.

Owners Taxes

Taxes are a necessary evil, so you need to look at your own salary to see if changes can reduce the tax burden.  

Savings account

If you find you need to adjust percentages, don’t underestimate the value of your savings account. Although you might find it necessary to reduce the percentage, never get out of the habit of depositing money there. Any small business CPA will tell you this is the account to use when you need money for another account, so you don’t become too dependent on credit.

If you want to make the most of setting financial expectations and intentions, contact the Accounting Advisers at Tolbert CPA. Or, consider our 90-day Foundations Program, where we strengthen your business financials and ensure every financial business decision is moving you closer to your goals. Sign up for an initial Foundations Program conversation with us here.

For more resources to get your Financial Foundations working for you, visit our Complete Guide to Strengthening Your Financial Foundation.