Spring Cleaning Your Business Finances

Editors note: Jennifer Fawcett is a freelance business manager and bookkeeper . She has represented many local photographers, producers and other creatives. Jennifer is currently listed in the Propville Directory in our Business Building section. Business Building is the silo that we keep all of the essential services for running a production business in the bay area.

It’s simple. Finances matter—a lot. Financial disorganization and lack of control take up energy and resources that could be better served getting clients, or pursuing the creative work you love.  And not understanding your business finances, or worrying about them, is just not any fun.

A business whose finances are well organized will attract more clients and make more money. Sound business practices, a clear billing process and smooth cash flow make it easy for clients to choose to work with you. Here are ten simple steps to clean up your act:

1. Get with the program. Buy finance software if you don’t already have one.  I recommend Quicken or Quickbooks. The creators of Intuit have also recently launched a web-based program for sole owners called Outright.

2.  Make a clean break. Separate business and personal! For two good reasons: the first is so if god forbid you are in an audit you can say rest easier knowing that all the expenses run through your “business” account are legitimate.  The second is just as important: so you can truly see what profit your business makes. The easy way to keep church and state apart? Dedicate a separate bank account (doesn’t have to be a business account) and credit card solely for business expenses. I suggest as few accounts as possible. If things get too complicated, consolidate into one business and one personal. 

3. Take a snapshot. Put all your business information together in one place. It can be as simple as a spreadsheet (if on Quickbooks or other software, bravo!).  Identify cash (bank accounts), and debt (credit cards and loans).  Get specific: note balances, APRs and pay offs.  Also enter any receivables or payables.  Getting the entire picture on paper will give a clearer idea of your current position.

4. Give yourself credit. Rank your credit cards in order of lowest to highest APR. Call each card to ask if you can reduce your APR or consolidate debt on a lower APR (be sure to ascertain balance transfer fees).  Then figure out which to pay first (highest balances and highest APRs) and which (healthy available balances and lowest APRs) to use the next time it’s necessary to charge a business expenditure. However, try NOT to take on additional debt, and keep cards paid on time.  As you grow your business, your credit can be integral in getting additional lines of credit.

5. Pay up.  Get into the habit of paying on time by calendaring bill due dates or keep a folder for “Bills to be Paid” that you check every Monday. Vendors and employees who are paid on time will want to continue working with you and refer you to others. It’s a win-win situation for you both. (Tip: get in the habit of requesting W9s so the information is ready for 1099s the following year.)

6. Get paid. Establish two important habits: invoice clearly and follow up. All invoices should clearly state your company’s information, your client’s information, invoice number, job reference and date, and the total due. Promptly sent, clearly delineated invoices beget timely payment. Then follow up to make sure the clients have received the invoice and ask if they have any questions. This is a great way of touching base before payment is due, and it’s as easy as an email. To keep track of who owes you money and when, use a calendar system or “Invoices Due” folder.

7. Single file. Two steps to instant organization: drop everything into an “Inbox” until you have time to file. Then file everything for the year alphabetically in an A-Z drop folder. (Tip: if you pay cash for anything, make sure to keep those receipts separate in a folder marked “Cash” under C.)

8.  Automate for the people. Set your bills to autopay, the hassle-free way to pay on time, every time. (Tip: spend an hour setting up autopay reminders in your calendar, so you’ll know of payment dates two days in advance.)

9. Watch your head. To get a grip on overhead, create a list of general operating expenses (fixed expenses) such as rent, utilities, payroll (or owner’s draw), and insurance, then question which can be reduced. For instance, could you control payroll costs by using a better payroll company? Are there improved workers comp rates? Can you lower phone or other utilities?

10. Draw a salary. To regulate both your personal and business cash flows, determine your personal monthly expenses (i.e. $3K per month), then split this amount into two payments to be transferred into your personal account on the first and fifteenth of every month.

And a bonus tip:

11. Team up. Find a bookkeeper or business consultants to talk with about your business finances and get you on the right track.  Make sure to pick one with stellar references, and don’t be afraid to get a second opinion.

Questions? Email me at jenn@jenniferfawcett.com. I’ve been helping creative businesses with their bookkeeping, accounting and business operations for ten years.