How I Reduce Drama And Trauma +
Increase Cash And Clarity In My Business
In Only One Hour Per Week
The secret to having less drama and less trauma in your business finances is to establish regular rhythms to keep track of finances and easy to maintain systems for decisions and reporting. In this blog post, I’m going to walk you through our weekly financial meeting, which allows me as a business owner of a multimillion dollar, multiple location business to have awesome clarity about financials and other key data. And as a bonus, since I adopted this approach we’ve had higher profits–and we even have a stacked up business emergency fund.
Don’t Be The Genius!
It always amazes me how as entrepreneurs we feel like we need to be the experts in everything. Stop the insanity! You are already more than busy enough improving what you do best. So instead of constantly reinventing the wheel, please, save yourself lots of time and heartache and use the expertise of other people whenever possible–don’t worry, there will still be infinite amounts of opportunity to use your genius!,
At NYC Guitar School, we are the experts in how to effectively teach guitar, but in non-guitar matters we look for other experts who have thought about a particular issue more than us and adapt the systems they put so much thought into. For financial reporting we (and lots of other smart business owners I know) have adopted a system called Profit First, from author and teacher Mike Michalowicz. I highly recommend reading this book. We’ve folded our Profit First habits in with with some of our other essential data reporting for our dashboard so that we can take care of all our tracking in less than one hour, once every week. Even though we do more than just financial data on Fridays, we refer to this meeting as our “Profit First Friday” meeting, and it is AWESOME.
(By the way, Michalowicz recommends two meetings a month on the 10th and 25th instead of one per week…but because I spend many of my days at other locations but already had a habit of spending Fridays in our main office where my bookkeeper works, we decided that a weekly rhythm would work better for us so that I could stack the Profit First habits on top of my existing rhythms.)
One Hour Of Serious Financial Clarity
My bookkeeper, Elaine, and I, created a checklist. Every Friday at 1pm, she fills in the date at the top of the checklist and then just goes through the checklist step by step. By 2pm, she’s done! And usually, I am involved from 1:45pm-2pm. That’s right, it only takes me about 15 minutes a week to have better clarity and confidence in my business data than I did with hours and hours of emergency time back when I started my business.
The first thing Elaine looks at is cash–because the first rule of business is “Never Run Out Of Cash”. That starts with a look at our bank account. In the bank we have multiple accounts set up, including Operating Income, Profit, Taxes, Operating Expenses and more, which are recommended in Profit First.
Sound complicated? When we first heard about the supposed advantages of setting up multiple accounts, Elaine and I said the same thing, “This is crazy! We already are having trouble keeping track of our finances–how will more accounts make life simpler.”
But in my previous life as an entrepreneur–and in those of many other entrepreneurs I know–when I had just one business account I assumed I could use it all to hire people, run marketing, make investments, etc. All would go well until I hit a slow revenue spell, needed to pay your estimated taxes, or any other “emergency.” What is the good of having only one account if there is no money in it!
So with Profit First, we see our revenues coming in clearly. We know exactly how much we took in during the week, because it is in an earmarked account. Then, before we do anything else, Elaine transfers some of that operating income into our profit account and tax set-aside account. It will never leave those accounts except as payments to the government or as profit.
Most of the rest of the money goes into an operating expense account–that is the money that we actually have to run the business. Then, she inputs the various transfer amounts and balances into our checklist.
Now that the accounts are set up for the week, she forecasts what our upcoming expenses look like, from outstanding checks to upcoming rent checks, payrolls, etc. so that we have a clear idea of our expected upcoming cash needs are, by not only looking at the next couple of weeks, but by looking at the same time period last year and asking me if there are any irregular expenses coming up. We do NOT want to be surprised! Then, she writes that down, along with whether we have a cash buffer, or whether we will need to be like a shark and take in some of that money as revenue in the upcoming weeks.
Then she takes a snapshot of how much money we have on hand compared to a year ago, to a couple of weeks ago, and compared to our total revenue. These numbers also get written down–and they go on our dashboard–which is a big board in our main office that anybody on our team can look at. I first learned about dashboards when I was am Goldman-Sachs 10,000 Small Businesses scholar–a great (and free) example of learning from the expertise of others. (More info and to apply here: https://www.goldmansachs.com/citizenship/10000-small-businesses/US/)
Now that cash is taken care of, she gathers some other data using our CRM/POS software. She runs up-to-date reports on total revenue for the trailing 365 days and month to date (and compared to last year), total students and total new students trailing 365 days and month to date (and compared to last year). These numbers also go in the dashboard. She also breaks out numbers by location and program. And guess what? These numbers also go on the dashboard–which our leadership team will review later in our weekly Leadership Team meeting.
Most importantly, Elaine runs a report to see how many high-commit students we have–those are the students who love our school so much that they take 30 or more classes a year! They love us, and we love them–and we’ve discovered that the secret to having more fun (and being more profitable) is to focus on loving them, pleasing them, and finding more of them!
Elaine has now put together all the data–but our Profit First Friday is not over yet. Next, I sit down with her and go over the numbers she has put together. Once in a while I’ll take some action based on what I see (like, “uh, since we are forecasting a shortfall of $50,000 if we put in the Animatronic Jimi Hendrix robot this week, maybe we shouldn’t do that!”), but usually I just look it over.
Then we do a deep dive into our expenses. She shows me all the discretionary expenses from all the locations over the past week, and the petty cash logs. As crazy as it may seem, I am able to skim all our expenses in just a few minutes–and if anything seems out of line, we immediately fire off an email or question. When I first started doing this, there were lots of expenses I had questions about–but at this point, our managers have a lot of freedom to decide on purchases they might need to make, and I have a lot of confidence that they will have good judgment. (Of course, it might not hurt that they know I will look at every transaction!)
We also use this time to look for recurring subscriptions that can crop up. I’m embarrassed by how much money we were wasting in stupid software and app subscriptions when we started doing this! And we also look for opportunities to cut costs–these opportunities might get turned into “to-dos” like “check with a couple vendors for better prices for X.”
Finally, to finish off our Profit First Friday, Elaine hands me checks that need signed. I used to get handed checks at random times with desperate stories about how urgentrly they were needed–but now, I am happy to sign a check at any time, as long as it is between 1:45pm and 2pm on Friday!
Take It Step By Step–And Start With An Appointment With Yourself
The power of a regular, repeating rhythm for this meeting combined with a clear, step-by-step checklist for how to do it is incredible! Rhythms and processes will set you free!
But please understand that we did not accomplish this level of clarity instantly. It was a process! If you are brand new to these concepts, I recommend starting SMALL. And you do NOT need a bookkeeper. Instead, start with making a regular weekly appointment with yourself to focus on your business finances and data. Make this an ironclad commitment!
In your first meeting with yourself, I recommend starting with CASH. Actually look at your cash, and compare that cash to your upcoming expenses. And as a bonus, if you can, compare it to your cash position a year ago so you can start normalizing what is happening in your business. It might feel uncomfortable, but it will be the start of a new and powerful habit.
After you do this a few times, you’ll be able to do it in just a few minutes. Then, start layering in other processes.
Well, that is the other thing you have to do–get educated. Read a book about financial rhythms, Profit First is a great one (I read the book a couple of times and also listened to the Audio Book, which is I highly recommend). Read some articles on simple business dashboards. Less is more, you don’t need to keep track of everything, you just need to track your most important metrics. Talk to other business owners, especially those who are more successful than you. Trust me, they feel your pain and will be happy to share their secrets.
Get Started In Just A Few Minutes–But Get Started
One of the coolest parts of our new automatic financial rhythms is that we’re setting aside money for profit and taxes on a regular basis. Every quarter, we empty out those accounts. The government gets whatever is in the tax account. That is nice, because paying estimated taxes gives me peace on mind.. But the profit account thrills me–because once a quarter my partner Jen and I take half of whatever is in our profit account as a distribution–and we stick the rest in a business emergency fund.
We’ve been stacking up cash in that emergency fund for a couple of years–and it’s kind of crazy, it adds up after a while. That gives me a great feeling, because I know a lot of businesses in America are running on credit lines and they have no cash reserves.
When and if the economy turns it will NOT be fun. It would suck for everybody, including us–but I have a feeling it will suck a little less for us because we have no debt and we have a cash emergency fund (in fact we have an emergency fund for the emergency fund because I was already squirreling away cash long before I found out about Profit First.)
Why Stop With Changing Your Business Life? Change Your Personal Finances Forever!
Changing your situation one regular and simple repetition at a time isn’t just good for business!
When I was 30 years old, I was not a very impressive potential spouse for my future wife. In fact, I was in default on my student loan and had no savings at all.
I read a life-changing book called “The Richest Man In Babylon” and decided to start saving, and it was such a struggle at the time to save $50 a month. But fast forward a few years, after I had started a business and started rubbing shoulders with some millionaires and I realize that all of them had some kind of automatic savings vehicle. They were all “paying themselves first.”
I thought “well if it’s good for them it’s good for me “ so now I actually have multiple accounts that my money flows into in my personal life before I even have a chance to see it. Before money even hits my bank account, I make sure it is set up to fill up my IRAs, kids college funds and savings.
A couple years ago I went one step further and took a page out of Profit First for my personal life. I have one account that is set up for mortgages and insurance and all those other big regular expenses that most of my money left over after savings goes into.. And then in another bank I have another account which is called “Dan’s Operating Expenses.” It’s a small amount of money compared to all the money that runs through the business and through my hands in a month, but it’s the money that I know I can do whatever I want with. If I use it so send kids to Summer Camp or take a trip or something like that and and I don’t have any money left in it, I don’t care–I just pack my lunch for a week or two and don’t spend any money. I’m not worried because all my savings and core expenses are covered!
I love having my own personal finances set up on automatic. I’ve separated things out so that all the important things are taken care of and I don’t really even have to think about it I just have to keep the system going–once a month I get an email that I wrote to myself that tells me how to set things up for the next month and I just follow the directions.
Yes, just like we have a checklist for running our business finances I have a simple, step by step monthly checklist to run my personal finances. (I also go through all our family bills every Saturday morning. It took so long to do it the first few times, but now I breeze through it.)
If you’re running a business you must have regular reporting rhythms where you track your cash and important stats, and gain clarity about what’s coming in and what is earmarked for where going out.
And in your own life you must set up your finances on autopilot, paying yourself first automatically, and with regular check ins so you have control and clarity.
You must do this, unless you like emergencies, chaos, and being broke and wondering what happened and why everything is a giant mess. In that case, keep playing it by ear! This blog will still be here in a year or two when you are ready for it!