Why there's nothing left in the bank at the end of the month

This is a conversation I've been having with a lot of clients lately. They're working really hard, the business is moving, and yet when they look at their bank account, the results just aren't there.

When we start digging into it, it's usually one of two gaps I've identified. The first is that they're not across their financial data. The second is that their systems and processes haven't kept up with the business growth. Both of them are very fixable.

You're not across your financial data

The first gap I see is that most business owners don't have a budget and they don't know how many sales they actually need to make to pay themselves the amount they want to. They also don't know what their expense base is, which means they end up spending money they potentially didn't have. Then tax time comes around, or it's time to pay themselves, and there's nothing left in the bank. There's no cash flow system.

Start with a simple cash flow system

Your cash flow system doesn't need to be complicated, and it doesn't need to take hours each month. What I usually suggest to clients is setting up separate bank accounts and moving some money out of your main account for things like expenses, tax and paying yourself. That way, at the end of the month when you look at what's left, you know you have all your bills covered and you aren't spending money that's not yours.

This is a much more simplified version of Profit First by Mike Michalowicz, and if you're interested in how to implement it in your own business, you can learn more from Mike here (not sponsored, just a really helpful resource for business owners!)

Then set yourself a budget

Cash flow is one part of the solution. The second is setting yourself a budget. Yes, a budget! Budgets aren't something only big companies should use. Small businesses should use them too, and they don't have to be dry, boring or scary. The key to making one that's useful is actually reviewing your real time data against where you wanted to be, and using that to inform your decisions.

I'm not talking about allocating every dollar and cent that comes through your business. I'm talking about having a guide, so you know things like:

• how many sales you need,
• how many leads need to come through your funnel to achieve that,
• how many clients you need to work with to hit your revenue goal,
• what your baseline expenses are to run your business each month,
• and how much revenue you need to cover those and pay yourself.

Having a forecast or a budget gives you boundaries and goal posts to measure against. It also means you can plan ahead for things like seasonal trends and be prepared for slower seasons, instead of landing in hot water and wondering how you'll pay the bills this month. Want to take December off? Planning for that actually starts way back at the start of the year, when you're putting aside additional cash throughout the year so you can still pay December's bills.

If you run a launch style model and you know which months you're launching, you already know those will be your higher cash months, so you can plan around them. Likewise, you can plan around your sales slumps, whether that's over Christmas, over summer, or over winter.

How I create a budget you'll actually use

I don't forecast for a full 12 months. It's too far out to be accurate, so I forecast three to six months instead. I start with my monthly baseline, which is the absolute minimum revenue and expenses needed to cover everything. Then I look back at my previous years' results for seasonal trends and factor those in.

The part that makes it useful is actually using it. Once you have your forecast, compare your real results for the month against where you wanted to be, and use that data to inform your decisions heading into the next month. Don't keep doing something that's no longer working just because it's what you've always done.

The key numbers to track each month

The numbers I'd track each month are revenue, leads into your funnel, conversions, expenses and profit. There are so many more you could track, but these five give you enough information without it becoming too much.

My own disaster with this

I'm a trained accountant. I spent more than ten years looking after the numbers for big organisations. And when I started my own business, I was too scared to look at my numbers, because I knew they weren't going to be where I wanted them to be.

You see all these people online talking about their successful six and seven figure businesses, taking their whole families overseas in business class or first class, and taking months off from their business. Meanwhile I was in a cycle of charging by the hour and never having any cash left at the end of the month to do anything, let alone take a holiday or pay for one. I couldn't even pay for a new laptop.

Then I got caught out with a tax bill I wasn't prepared for, because I'd been burying my head in the sand a little bit. So I built a system. Now I know how much revenue I need to cover each month to pay myself, cover my bills and pay my tax. Anything above and beyond that is money I can spend or save. 

It also tells me what to do next. When I'm having a quiet month and my revenue is lower, that's my indicator that my marketing strategy isn't working at the moment and I need to change things up. Or maybe it's the opposite, and I've got too many leads and things are going really well. Either way, I need to be across it.

You don't have to DIY all of it

Finances and tracking your numbers is often not a strong point for many business owners, and it's the reason a lot of my clients have actually hired me: to help them understand their numbers and stay across them, because I can put it into simple language that makes it super easy to understand what's working, what's not and what we need to adjust.

I know as a small business owner it can feel a little bit bougie to pay someone to help you run the finances and hold you accountable. But bigger organisations have CEOs, CFOs, financial controllers and accountants. Companies have a whole team of people helping them run the business, and each of them has a very specific skill set. When we start our own businesses, we often try to DIY all of those things, and there comes a point where the business outgrows it and DIY-ing everything is actually holding the business back.

Understanding your financial data, creating KPIs and budgets and tracking all of it might not be high on your to-do list right now. But by keeping an eye on it, you can send your energy and focus into the areas that aren't working, so you can either fix them or decide they need to go. And you can make those really tough decisions with data backing you up.

How I work with clients on this

This is the work I do with clients, and there are two ways we can work on it together.

If you just need a little guidance, a 90-minute strategy session is perfect. We review your current data, create some financial goals and benchmarks, and come up with an action plan you can start using straight away. You'll also get the recording and a written summary within 48 hours.

If you'd rather have someone help manage this side of your business, I have a couple of spots left for my OBM Quarterly packages. I work inside your business as your OBM, helping you stay across your numbers month to month, alongside the project management, systems and team coordination that keep everything moving. Each package is scoped to suit your business, so we'll start with a conversation about what you need.

If either of those sounds like what your business needs right now, book a discovery call and we'll work out which one is the right fit.