This article was originally published in slightly different form on Inc.com
It’s practically impossible to get a business loan as a 14-year-old entrepreneur operating out of your bedroom. I learned this the hard way in 2004. I was working on my first business. It was a great idea, very technical, very niche; but I couldn’t raise capital to meet demand and growth (you can’t get a bank loan if you aren’t an adult!).
The problem was that I really didn’t understand or care about the numbers, and the outdated accounting systems I was using became an even bigger issue when I discovered everything was out of date. I was stuck, unable to grow the business, and needing to do serious damage control. I found myself having to shop around for an accountant, bookkeeper, and tax person to bring my small business back to life, all the while wishing there was some easy fix or software that could just automate all these issues away.
Unfortunately, this miracle solution did not exist (yet), so eventually I had to sell the business.
While I was upset and disappointed, my misery had lots of company. Many other entrepreneurs have gone through something similar with their startups.
This is because, like my 14-year-old self, many fearless entrepreneurs hide from their accounting and lose sight of the value financial reports and figures can add to their small business and to them as a business owner. It wasn’t until I started taking accounting classes to run my current business, inDinero, that I realized that managing the money myself was the best way to actually make more of it.
Since then I’ve integrated these six methods into our business model and subsequently bootstrapped inDinero into one of the fastest growing small businesses in the country:
1. Start by being a frugal leader
Building a pattern of frugality has to start with the leader. When you run a small business, your voice is exponentially more likely to be heard than that of an accountant or outsourced financial firm. That’s why you must make it clear that it is your priority to be fiscally responsible.
2. Be one with your numbers
This may sound intimidating , but once you throw yourself in—and dig your way out of—the weeds, you’ll likely see you already have a good idea of what to look for based on past meetings with advisors, investors, and accountants. The beauty of immersing yourself in accounting is how eye-opening it can be to see the way money flows in and out of your small business. This kind of context is a great way to help you start asking the right questions.
This doesn’t have to be hard, either. There are products and resources that help make it intuitive. Getting inside my financials and accounting dashboard every week has been the game changer that has helped me make better decisions with inDinero than I made with any of my past businesses.
3. Review all expenses
I want to know where all of my money is being spent. Every single penny. And I take it seriously. I run an accounting firm after all.
We’ve made frivolous purchases in the past that I’m embarrassed to even think about now, so even as a small business that emphasizes smart spending, I make a point to monitor reimbursements and ask questions about anything that looks like a red flag. And that’s not to say we don’t spend on things that are fun, but those fun purchases are budgeted for and prioritized, just like anything else.
4. Negotiate every deal and every vendor like you’re at a flea market
I think it’s worth noting that nowhere on this list does it say that small businesses should be thrifty or skimp on expenses. Expenses are a part of what makes your business thrive, but no matter what you’re buying, there’s always room for negotiation.
This is where being aware of your spending really pays off. Having a backbone is important, but having knowledge and insight about your expenses is even more key for successful negotiating. If you know your accounting and understand the value a product or service will provide your small business, then you are in a great place to negotiate what you think is fair, and have the information to back it up.
5. Be transparent about your budget
I touched on this before, but your budget is only effective if your fellow leaders and department heads are aware of it. Like I said, we budget for everything at inDinero, from hardware to happy hours, and we can do this effectively because our management team has transparency from me about the budget and is free to trickle that down to their team.
This transparency is what makes it easy and straightforward to question any seemingly silly expenses that I come across later.
6. Make every department a value center
My rule of thumb for budgeting projects is to always think about the ROI. If the potential or perceived return is worth five times the investment in the project, then it’s a go! But the important part is actually calculating that investment accurately.
This means more than just looking at what products, vendors, and freelancers might charge but giving value to the time investment of your employees. In this sense, I run every department like an agency would and challenge all employees to track results to their time spent working. Be smart about tracking and tying all efforts back to activities and functions.
The key with this approach is to hire with these expectations in mind and look for those who are results-driven, no matter what role they’re applying for. You want to see past work and how they’ve tied that back to results and revenue.
I’m not saying any of these methods are easy. It sure as hell wasn’t easy for me to get started, and it still felt like a chore for a long time. But I knew if I persevered I’d be able to make habits out of these tasks and adapt them as second nature.
Now that I have that foundation in place, I spend my time thinking of how to balance frugality with getting the most value out of what I already have. Some may say I’m an obsessive and that we care about the numbers to a fault, but I’m very proud of how far we’ve come, and I know that applying this strategy is how we’ll get where we want to go. It’s not that I fret over expenses like lunch or a Starbucks latte, but I am thinking about how we’ll get a $500,000 return out of every $100,000 expense. It’s those big-ticket items that get a lot of my attention these days, as they should, and would even if had infinite bags of money lying around.
Small businesses that know their accounting make smarter business decisions.
*Cover photo via TaxCredits.net