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10 Financial Musts For Your Business 2021

10 Financial Musts For Your Start-Up Business (Or Side Hustle) 2021

If you’re looking to organize your business finances, you’ve come to the right place.

Before you begin, open up a blank page on word, or get some paper and a pen. Instead of mindlessly skimming through this list, use this time to start getting your financials together. Each point will contain a quick 1 minute exercise to start getting a rough idea of your businesses financials.

Don’t have a business yet? That’s fine, this is a great opportunity to hash out your idea and figure out whether it will be profitable or not.

Now, let’s get started.

1. Set Financial Business Goals

Before you start, figure out where it is you want your business to be going.

Are you looking for investment? Getting a loan? Are you looking to expand rapidly, or are you creating a business so you can sustain your life-style and work on your passion? Maybe, you just want a little extra income. Figuring these things out will give you a good idea about what financial route you want to take.

Exercise: At the top of your page, write one financial goal for your business or idea.

business laptop and coffee

2. Track Recurring Business Expenses

Most businesses will have recurring expenses. This may be rent for your office space, website hosting costs, or outsourced bookkeeping. Understanding this will give you a good idea of how much you need to sell in order to cover your basic costs, as well as how long you can last without making an sales at all if you have invested money into your business already. It would be helpful to start thinking about where to track these expenses, for example Xero or Quickbooks.

Exercise: Write the top three recurring expenses your business has or may have.

3. Identify Clear Revenue Streams

Most start-ups will sell more than one product or service, and almost always, they will perform at different levels. Keeping a tab on where your income is coming from allows you to see where you are making the most money.

Lets imagine you sell hats for $10, and backpacks for $50. In August, you sold 80 hats, and 50 backpacks. If you aren’t tracking, you may believe your hats are the best selling product, and put your energy into them, but in fact, your hats made $800, whilst your backpacks made $2,500. It is then clear to see that selling back-packs has made you more money, even though you sold less.

Exercise: Outline your different product/service lines and their cost. Write actual or estimated sales in the month, and multiply these two figures. Circle the highest gross revenue figure.

4. Identify Clear Debt Plans

woman with business journal and laptop

You may buy equipment or stock on a financial plan. You may also have a loan from a family member, yourself, or a bank. Additionally, you may have been lucky enough to obtain a pre-order payment by a customer, with an agreement to send them your product/service next month. This can be overwhelming, and can very quickly get out of hand.

Exercise: Identify your businesses debts, and write how much you owe next month, next quarter, and next year.

5. Do Not Forget Hidden Costs

Merchants such as Stripe, Shopify or even payroll providers such as Gusto often have hidden costs. This doesn’t mean they are ripping you off, and often times the price of them is well worth the convenience for you and your customer, but it is important to include this in your revenue figure.

For example, you may sell your $10 hats on Stripe. They may charge you a fee of 5% of each sale, so you only actually receive $9.50. It is easy to forget this, and declare your revenue at $9.5 x 80 sales ($760) instead of the $800 that you actually gained. Once these numbers get higher, this can cause tax complications, so it’s better to start now rather than face large penalties later.

Exercise: List all merchants and payroll providers you use or may use. Don’t forget! Paypal and other similar “banks” may charge transaction fees too. Next to each, write the cost or percentage charged.

6. Keep Up To Date On Business Expenditure Categorization

It is very, very easy to put off doing your books. An option is to outsource this to a professional, but if you have decided to do it yourself, make sure to keep on top of this. Each month, ensure all transactions have been categorized into different expenditure area. This will help with your expenditure analysis (see below), but will also help with your taxes later on in the year.

Exercise: Look through your previous week of expenditure through your bank account and try to categorize each transactions. Sum the categories, and circle the highest.

7. Figure Out Profitability

Business expenditure counting tool

There is a super quick margin calculation you can do in seconds. You have likely heard about it on TV or in general conversation, but a surprising number of Entrepreneurs forget to do it: Gross Profit Margin Per Product/Service

Let us continue with the Hat and Backpack example.

Your Gross Profit Margin Per Product/Service: Price ($10) – Cost of goods sold ($5)* = $5

* Your cost of goods sold is anything that DIRECTLY relates to the creation of the product/service sold. In this example, it would be the material used to make the hat, and the hidden costs mentioned before. With services, it is slightly more tricky.

Exercise: Take your top revenue streams, and conduct the above calculation for these products. Circle the highest value. Are they as profitable as they seem?

8. Business Structure Analysis

By this point, you have either registered or are thinking about registering your company. It is important to look back at the top of the page for this one. What are your goals? Depending on your goal, different structures may be beneficial.

Exercise: Do a quick google search of the types of businesses in your region. Outline which structure suits you best. Remember to look back into this depending on your goals. It never hurts to ask a professional for advice.

9. Analyse Business Expenditure Over Time

As soon as you can, get into the habit of tracking your expenditure over time. You may notice that bank charges have been increasing rapidly over a few months, or that advertising is a large cost for many months in a row.

One important tool is diving the monthly charge by your monthly revenue and multiplying this number by 100. This will give you a percentage in terms of revenue. This may indicate that you are spending 30% of your revenue on bank charges, which seems too high.

Exercise: Choose your top three expenses, and calculate their percentage of your revenue. Does this seem reasonable? How many sales will you need to make in order to cover this one expense category?

10. Open A Business Only Bank Account

Finally, to make all of the above steps easier, open your own business account. This can be something as simple as a business Paypal account. It is to ensure that your business expenses are separate, and will help tremendously in the future as your expenses and revenues get higher.

Exercise: If you do not have one already, google a few potentials for your business. Once you have set up an account, move an amount of money into this account for your business expenses, and connect your revenue streams here too.

Money from business

That’s it! Share your findings with us and we’ll give you our best (free) advise!