The mid-year mark is a good time to do a quick annual assessment of your business’s financials, and here’s the reason I’m going to encourage you to resist the temptation to wait until tax season to file those receipts, download your payment transactions and review your bank statements. By being proactive and paying attention on a more regular basis, you might be surprised to find easy ways to save yourself money and increase your annual net income by making just a few tweaks to the way you are doing things.
Before we get to the really fun part, I must emphasize that this process starts with having a solid accounting system in place that will automatically download all your bank, payment service (like Paypal) and invoicing transactions. I recommend WaveApp for anyone looking for intuitive software with a modern flare. The second step is creating a monthly reconciliation to validate income and expenses. Finally, on a quarterly basis, conduct a review of your finances to identify opportunities to reduce costs and explore repeatable income sources.
A common mistake made by new business owners is to manage their financials based on the balance in their bank account. If they have money in the bank, it feels like a good week. But, that’s a very limiting way to look at the financial health of a business. It definitely doesn’t provide the information needed to effectively reduce costs, nor does it help identify new opportunities for the business. These are two things that accounting software can do for you!
Once you have your system in place, you will be set up to do take your financial analysis to a new level, potentially having a positive impact on your net income. Because when you think about it, selling more products or offering more services (i.e. working more) is only one way to increase your net income; another way is lowering your business expenses. Remembering that helps you to look at your costs through another lens, and it may make it easier to be disciplined when it comes to spending money on your business’s behalf, or really assessing where your dollars need to go.
Hidden or elevated costs can hinder your business, and they may be holding you back in ways you are not even aware of. Doing a mid-year financial check in can help you find things like under-utilized accounts and inactive memberships that are costing you money. Charges that are only $10 – $25 a month may be small enough to stay below your radar, but a few of them can quickly add up over the period, so it’s better to catch them in June than December.
That’s why I recommend sitting down half way through the year to make a list of all the costs you have incurred for your business over the past year, and highlight the ones that feel higher than they need to be. Then, see if there is a way you can negotiate something lower. For example, if you give classes and you are paying a high venue fee, perhaps it’s time to see if you can negotiate something better (if you have proven yourself to be a good regular customer, perhaps now is a good time to ask for a deal; if not, consider whether another venue would be a better option).
Think creatively about ways to bring down your expenses. This process only need take a couple of hours, but it could save you hundreds of dollars, or even more!
Tool Recommendation: WaveApp