We recently explored what it means to have "financial confidence" or the knowledge and faith that your business is meeting its fiscal objectives, and the sense of certainty imparted by a robust and accessible set of bookkeeping data.
We learned that financial confidence has as much to with the facts of one’s business as it has to do with an executive’s feelings about the business—the two are woven together in a pretty tight ring. From there we know that you can’t manifest feelings or facts out of thin air, so how do you build confidence in your business’s finances?
7 Steps to Developing and Harnessing Financial Confidence in Your Small Business
Whether you’re launching a startup or embarking on the next stage of your business’s development, here are a few things to do first:
Figure Out What You Know and Don’t Know
Where are the gaps in your understanding of your company’s finances? Numerous first-time CEOs find themselves baffled by business taxes, for instance, or blindsided by the costs of necessities such as obtaining licenses, developing intellectual property, and onboarding new employees. Find out what your company is spending money on—and how much—so you can control costs and maximize the value of your team.
At the same time, consider what you don’t—and perhaps can’t—yet know about your business. How much is your company really worth? What is the risk of an important and expensive piece of equipment breaking down? Are your personal assets implicated in a potential lawsuit? No founder can predict the future but you can, at the very least, prepare for the worst.
Pursue goals rather than following assumptions—we all know what happens when you assume. Instead of resting on what you think you know about business or what you want to wait and find out, smart (or SMART) goals give your business’s future the gift of boundaries in the form of scope and timeline.
To plan realistically for the future, you need to investigate the past and present. As you steer your organization towards tangible results, I can guarantee you’ll build confidence not only with every milestone you reach, but each one you miss. Over time, as you begin to fathom what your company is capable of, and what month-by-month, year-by-year patterns characterize your financial performance, the goals you set today will help you hone in on smarter, more detailed objectives next time around.
Concentrate on Cash Flow
Just as blood flow keeps your body alive, every sustainable business needs a healthy cash flow. As you gain a better picture of your company and establish a vision for your future, don’t lose sight of your cycles of revenue. Demonstrate your ability to meet income projections, and pay your debts back on time—and your bank and investors may be more likely to take on greater risks and help you out during a pinch or period of intense growth.
This means keeping your sales and marketing staff motivated and on track. Being transparent about goals and company performance will influence your sales team and give them better ideas of what their quotas and stretch goals really mean to the organization. Recognize their achievements and communicate how they impact the company’s ability to sustain and expand.
Start Saving Early
As with any other form of confidence, financial confidence arises from a feeling of security. Expect the unexpected. Don’t let a single regulatory action, lawsuit, financial dry spell, or customer dispute sink your business. Start building up an emergency fund as soon as you can.
One thing that is almost certain is the only regret you’ll have when it comes to saving is not starting sooner. Hopefully, you won’t face a crisis that leaves you with no other option but to dip into your business’s savings, but what counts is the knowledge that the option is available if you need it.
Reward Yourself Along the Way
You’ve heard the advice a thousand times from a thousand different financial gurus: Pay yourself first. As your business builds momentum, so should you as a business owner. That means setting your own milestones of how you’d like to mature as a person and leader. Be sure to take the necessary steps to get in tune with your own financial health and what you need in order to care for yourself.
Even if you’ve reached the point where you can account for every cent your company earns and spends, you might lack financial confidence right now because you haven’t fostered these same habits in your personal life. As a founder or CEO, your future is intrinsically tied to your company’s future—you can’t feel successful in one without the other.
But that doesn’t mean you have to reach the tippy top of the mountain to feel accomplished, you can stop and take in the views along the way. You need to have the right expectations about long-term growth. No matter what it looks like on Inc. or Forbes, these things don’t happen to people or businesses overnight.
Harness the Experience of Others
Tap into the wisdom and insight of others who have dealt with these issues before, or who are navigating them now: your investors, advisors, and peers. Ask them where they see your business’s greatest financial risks and opportunities, what they think of the current revenue model, where they hope to see the company in five or ten years, and so on.
You may want to create an advisory board, or participate in one within your industry or community. Your company’s leadership should not rely on outside perspective alone when making critical decisions. But the experienced— and objective—points of view advisors bring to the table provide essential points of comparison and can indicate broader economic trends worth taking into consideration.
Arm Yourself With Help From Financial Experts
For many entrepreneurs, managing the bookkeeping, taxes, reconciliations, and invoice processing may seem like the necessary administrative evils of running your own business. Some even think this process brings them closer to controlling their business’s destiny and that hiring an accounting partner might mean losing out on valuable insights—in fact, it’s precisely the opposite.
There is a fundamental difference between understanding your company’s finances and handling those finances yourself. In fact, taking this on can leave your business exposed to the damaging effects of major financial risks and crippling mistakes. The last thing you want is for your business to be another cautionary tale. A qualified outsourced accounting partner helps you streamline these processes so you can keep your head out of the weeds and your line of sight directed toward growing your company, achieving financials goals, and increasing the value of what you’ve built.
What unifies the steps it takes to achieve financial confidence?
You may have noticed that this list has a mix of inward and outward influence. That’s because no one creates a company alone. Confidence sprouts from within, but your belief in your business is grounded in working with others. It’s more than understanding what you can achieve—it’s knowing who has your back.
When it comes to your accounting, bookkeeping, and taxes, you need a partner who takes the time to get a sense of your business and what’s holding you back financially. Before deciding on an accounting solution, be sure you have a good picture of what tools are out there. The Entrepreneur’s Guide to Accounting and Tax Options pulls together the current landscape of existing tools so you can decide what makes sense for you and your business all in one place: