The Practical Financial Setup For Success

Apples and oranges

Getting ahead is a struggle. How can you change your daily habits when you are not quite aware of their impact on your bottom line. Here is something that may open your eyes and make you say “AHA Moment!”:

In the first part of this Series: Practical Financial Styles In Small Business, we classified small business owners’ financial styles in a simplistic way for a good reason. Working with your style rather than ignoring it, may improve your cash flow woes.

How can you organize your financial setup to sprout your financial style?

Two steps: You need to setup for your financial style, and be able to quickly pull and read your basic financial reports without calling your accountant.

What is a special setup for success, depending on your financial style?

The Spender needs help with planning his expenses, rather than treating all revenue as an expense account. The simplistic version would be to setup a separate bank accounts for different targets. As each revenue bit goes to the first account, a part needed for taxes and instalments is immediately transferred to a second account, a part wished to be set aside as a profit is immediately transferred to a third account, and the rest is transferred to an expense account. It could be done on a percentage basis, or using a pre-set formula that would work.
That way it is crystal clear what can be spent without problems. Expense account should be further divided into fixed expenses such as rent, telecommunication, payroll etc, and other expenses that are more flexible. It may sound complicated at setup, but it works like a charm for most Millennials and socializing notoriously Sales people. This model is also known in similar versions as “savings for a goal”, where you set a goal, and transfer pre-set part of every pay cheque to a special account, which will be used when savings goal is achieved. There are a few Fintech startups now, created for Millennials wanting to sort out their money and goals in an easy way.

The Saver, on the other hand, needs a different setup to make for a smoother growth. The Saver figured out all the basic costs of running his business. He/she is very efficient with costs, but needs a push to keep up with the revenue requirements. This business owner does not need separate accounts just to manage their expenses. What is needed here instead, is a cheerleading approach to focus on, and celebrate every sale, on a daily basis. Goals are daily sales. Introverts can be taught to make a sale, but it’s an unpleasant chore. By getting it done systematically, or hiring sales people, revenue will be coming in a more steady way, without frustrating ups and downs. Partnering with an extrovert may make sense. Re-evaluating your business model often is highly recommended. And sometimes you just have to look for a niche where business comes from high volume repeat sales or one large long-term customer.

The Unicorn Seeker is running business on a line of credit, a grant or a crowdfunding effort.
Fast growth is of essence here, for two reasons: First-to-market wins big, before the competition copies his idea; and fast growth is essential to a serial entrepreneur to prove high valuation for a successful exit. Costs do not matter here as much as quick development of omnichannel sales and meticulously thought-through business model that works.
A trap to watch for (even if you are a unicorn genius) are financing fees and servicing interest. Bank fees on a line of credit can easily reach thousands of dollars a month (yes, in a small business), and difficulties in keeping up with the credit requirements may fail your chance for a second round of financing, which may be needed before you reach a startup stage suitable for sale.
In case of grants, costs may be unexpectedly increased by the requirements of detailed reporting and frequent inspections. For those businesses, finding financial institutions that would work with them without excessive fees and constraints, may be crucial to accelerated success.

As for the blissfully unaware, hiding head in the sand holds little hope for their business, other than keeping at arms-length a trusted consultant and mentor who will be a constant reminder of reality check and regulatory knowledge. Pursuing passionate hobby, if it were a business, needs a solid business model, or it will become a significant drain on family resources, both financially and in terms of self-esteem of the wannabe entrepreneur.
Failure happens more often than success, so make decisions quickly and frequently to get to success quicker.

This completes the setup of different financial styles for success. Of course the above classification is simplified and real life small businesses are somewhat more complex.
Partnering in business may alleviate the pains of some of these deficiencies, however being acutely aware of your financial style will help you sprout success.

In the next part, read about second part of the successful financial setup: the Dashboard.