Self Employed | Business Finance| Money Management| Finances| Small Business| Entrepreneur

Let’s talk about your business finance system because I use that term a lot and it can feel a little vague and abstract. Like, what does that even mean?????!!!!!

No, but seriously what is a biz finance system?

For most people, what they think of as a business finance system is just a bookkeeping system. But there’s actually a lot more to your business finances than bookkeeping. SO much more. Like 7 important-gotta-have-it-to-make-sense-of-the-money more.

Which is what I’m breaking down for you- the seven essential parts of a business finance system so you have a sense of ALL the pieces that you need to start thriving with your money.


Tracking System

The first essential part of a business finance system is probably what you think of right now when you think of business finances. And that’s going to be a tracking system. Also known as a bookkeeping system also known as a record keeping system.

There are a lot of ways that people talk about a tracking system but essentially it’s the way that you keep track of your income and your expenses in your business finances. Tracking systems can range from being super simple to a bit more complicated to pro level.

The very simplest form of a tracking system is a paper tracking sheet, either a paper ledger or a binder where you hand write your income and expenses. Paper tracking sheets are the most low tech and low investment option. This is a system that you can get started with right away.

The next system is a spreadsheet. Instead of handwriting everything, you’re taking that same data and putting it into a digital format. The biggest benefit of spreadsheets is that the formulas auto calculate so you don’t have to do all the math yourself. Which is pretty awesome at the end of the month when you’re not sitting there trying to add up a bunch of numbers.

The third system is most of the advanced system and that’s a digital accounting program. And, even though these are more advanced, they save you a lot of time and energy later. The most popular digital accounting programs are QuickBooks Online (which is my go to and what I use), Xero, and Wave. These systems are the highest time and financial investment but also have the potential for the most automation.

Additional resources: Bookkeeping QuickStart SpreadsheetThe Ultimate Guide to Picking an Accounting Program You Will Actually UseHow to Setup QuickBooks Online: The Ultimate Guide for Non-Accountants


organize business finances

Invoicing System

The next part of your business finance system is your invoicing system. An intentional invoicing system is crucial if you’re an invoice based business. And by intentional, I mean a system that is effective (you get paid on time), efficient (you don’t spend all day dealing with), and easy for you and your clients to use.

What do you get when you have all three of these things? Really freaking good cash flow.

So what makes a good invoicing system? First, very very clear payment policies around how and when your invoices get paid AND what happens if people don’t pay you on time. If someone doesn’t pay you on time there should be a consequence (usually a late fee). No one likes to waste money on late fees and after the first late fee, people will prioritize paying your invoices.

Another aspect of a good invoicing system is your invoice delivery system. This is HOW you get your invoices from you to your clients. You want your delivery system to be easy for you to manage. This means that you aren’t overwhelmed with hand typing 20 invoices in one day- because let’s be real- you’re probably not going to do it if you feel like that. And then you’re not going to get paid.

It also means that the invoices you send are easy for your clients to access and understand. It should be easy for your clients to identify what you’re charging them for and to pay you. The goal is to eliminate the number of questions your clients have when they receive your invoice.

The more questions- the longer it takes for your clients to pay you. The more information and transparency you provide on your invoices, the faster your clients will pay you.

Additional resources: How to Set Up A Killer Invoicing System So You Always Get Paid

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Getting Paid

The third part of the business finance system is getting paid.  This is how you get paid for your products or services. Invoicing comes in here as a method of payment but getting paid encompasses more than just invoicing.

The first part of getting paid is the way your clients or customers give you money. This can be an invoice that they pay online, an online checkout page, PayPal, or even just writing you a check. There’s a lot of different ways that you can get paid and you want to think about what is the best method for your business.

The next part of getting paid are your payment policies. Examples of payment policies are that you only accept three forms of payment or that any invoice over $1000 can only be paid via check. These are the details surrounding the method of payment. And in a sense, these are the boundaries you set around your business finances both for practical and emotional reasons.

Next, we have your refund policy. This is your process and boundaries about when people ask for a refund. What refund requests do you honor? Which requests do you not honor? What are the criteria for asking for a refund? What’s the process? These are all part of a refund policy that you want to have a clear structure around so you’re not panicking every time someone asks for a refund.

Finally, we have your discount policy- which is how many discounts you give out per year and why. A discount policy helps you set boundaries around how much work you’re giving away and ensures you don’t act reactively every time someone asks for a discount.

As women, we’ve been conditioned to show up in a default giving mode- meaning that when someone asks us for something our instinct is to agree and oblige that person. We feel selfish when we say no or stand up for our value. Starting the year with a discount policy and discount budget gives you a framework to follow so you don’t fall back into a pattern of over giving. It benefits the personal you and your business.

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Document Management

The fourth part of a business finance system is document management. This is what you do with all those pieces of paper that are related to your business finances.

One of the most common documents people worry about is their receipts. Legally, in the  U.S., we need to keep receipts for three years and you need to decide how you will store and manage your receipts. But there are other documents you also need to keep, like bills and invoices from your sub-contractors and tax documents.

You have two options for document management- hard copy storage or digital storage. Hardcopy storage is setting up a filing system for your receipts, tax documents, and paper invoices.  A digital system means that you will scan the documents, file them on your computer or in an app, and then toss the paper.

There are a lot of different options to choose from with either of these methods but the main thing is intentionality and choosing a method you can keep up with. Having an intentional process around receipts and paper clutter quells the overwhelm of having to stay on top of EV-ERY-THING. It also relieves the emotional burden of worrying about that stack of paperwork that needs to get filed.

Additional resources: 3 Easy Ways to Get Your Business Receipts Under Control


Cash flow management

Let’s get into the next part of a business finance system which is cash flow management. Cash flow is the amount of cash that comes in and goes out of your business. When I say cash I don’t mean actual $20 bills- what I’m talking about is having money in the bank. If you have to pay for something is there cash in the bank to pay for it?

Cash flow and profitability are not the same thing. Your business can be super profitable and you can have very little cash flow. Or you can have a business that isn’t very profitable but has a lot of cash flow. Cash flow management is really about having the money available to pay for the things that you need to operate your business.

There are two parts of cash flow management. First, there’s the inflow- we need to have money coming into our business on a regular basis. And this links back to the invoicing system and getting paid. So we’re seeing how all of these pieces fit together.

Then there’s the outflow part of cash management which is how much money you’re spending and WHEN you’re spending it.  You could be spending $1,000 before your $2,000 check arrives and that will impact your cash flow.

One of the main cash flow tools that people use to monitor inflow and outflow is a budget. A budget tends to be the primary cash management tool for most small businesses and creating a realistic budget can drastically improve your cash flow.

Another element of cash flow management is when you spend money and why. This is where the emotional stuff comes in. Sure, we can make a budget, but if we have emotional spending triggers that derail our budget then it doesn’t really matter if we have a budget.

Understanding the emotional reasons you spend money will help you manage your cash flow. Ask yourself why certain situations create an impulse to spend money. Why do you feel triggered to buy something when you’re sad? Why do you feel triggered to buy something if you get a big check? What’s driving your spending beneath the surface?

Additional resources: Free Business Budget SpreadsheetHealthy Cash Flow Management That Won’t Freak You Out!The 5 Biggest Budgeting Mistakes

Understanding the emotional reasons you spend money will help you manage your cash flowClick To Tweet

Taxes

The next part of a business finance system is something everyone just loves- taxes! This is saving for and paying your taxes as well as filing your annual taxes. And what this part of your business finance system boils downs to is being prepared for taxes. Both in the money part, which is paying your taxes, and being prepared for the actual filing part.

The method I use for saving for and paying taxes is to save money every month in real time and then make your estimated tax payments every quarter. Saving in real time means that every month you calculate a percentage of your net income to save for taxes and immediately transfer that money to savings.

As a self-employed person, unless your business takes a loss, you will have to pay taxes- that’s inevitable. Ignoring your taxes until you file them can feel good throughout the year but generally causes stress and panic come tax season.

It can be emotionally overwhelming. Saving for your taxes throughout the year is an act of self-care- it’s a small kind action you are taking for your future self.

The second part of taxes in your business finance system is being prepared when it’s time to file your taxes. This means keeping up with your bookkeeping so you’re not scrambling trying to collect your data on April 14th. Taxes are stressful enough and undone work can just add to an already tough situation.

Make a weekly appointment to keep up with your income and expense tracking throughout the year. Doing the work weekly not only keeps the task list manageable, but it also builds the habit of engaging with your money and being in a relationship with it.

Additional resources: How to Automate your Tax Savings with QapitalHow To Prep For Your Self-Employed Taxes: A Survival Guide


Owner Self-Care

The last part of your business finance system is owner self-care. This is how your business takes care of you as an owner and contributes to your personal well-being.

I like to think of it like this: there’s the business me and the personal me. There’s the Andi that works on my business and the personal Andi that isn’t in my business at all. That’s the Andi that likes photography, travel, walking my dog and unicorns (okay…I like unicorns in my business too).

Owner self-care is how my business gives back to personal Andi- not business Andi. An essential part of this system is how your business pays you- which is your owner pay schedule. This is how your business gives you money personally so you can live.

Another part of owner self-care is your personal savings. How does your business contribute to your savings so you can make investments in your life? Then there’s debt payoff. How does your business support you paying off debt?

And also future you support. How does your business help you save for retirement? Pay for your health insurance? Pay you for sick time and vacation pay?

These questions are the very last things people think of in their business finance system. We tend to over give back into our business and it’s difficult for us to then to redirect our money to ourselves, even though we started a business so we have income! So much of our personalities get wrapped up in our business selves that it takes a while to realize, “Hey isn’t this supposed to be taking care of me?”

Which is why owner self-care is so important- it builds the habit of your business taking care of you and it puts you in the equation.

Additional Resources: Owner Pay Calculator, How to Pay Yourself So You Actually Have Enough Money (+ free owner pay formula)


Putting it all Together

You might be thinking, “Oh my gosh you just named seven things and I don’t even have a bookkeeping system yet!” And maybe you feel like you’re brain is going to explode.

One tip is that the more of these pieces you can integrate and get working together, the more automated and streamlined your biz finances will be.

Creating partnerships between all of these parts will make it easier for you to keep up. And the truth is that these things actually can and WANT TO work in partnership with each other. They can build off of each other and feed into each other. The most important part is to focus your energy on creating a system that’s intentional and working together so it maintains itself.

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