Episode 21: The Signal Finance Systems

Speaker A: Hi and welcome to this episode of the Business Flow Formula. We're talking about how I run my business in a four part series, the piping hot Tea behind Running Signal Operations. And how I do things from finances to marketing to people ops to general business operations. Now, I've been running my business now for eight years, which is kind of hard to believe. And I've learned some lessons, sometimes the hard ways over those years. But today we're going to be talking all about finances, which of course is our main service that we offer here at Signal operations. Monthly bookkeeping, 60 minute Q& A periods, cash flow forecasting, bookkeeping, cleanup or just payroll admin, if that's what you need. Now, the piping hot tea behind finances. Yes, even bookkeepers get finances wrong. We can have all the right tools helping us. We could be trying to make the best decisions. But often, just like a mechanic's car gets delinquent sometimes, sometimes the bookkeeper's books get a little bit behind. So let's go back to a story of when I first started Signal back in 2018 and I was focused on so many other things other than my own numbers. I would jump in every few months, four months, and see what was going on. I had an idea of the money in, money out, and what the taxes could maybe be. But when I went to do my taxes in 2019 for the 2018 tax year, I was significantly off on my numbers. That hurt. But I made sure that even my own numbers were ready and up to date all the time. From then on, I made sure that I was fully in control of my finances, just like I tell my clients. So there was one year that I just didn't pay any attention. I didn't set any money aside or anything like that. Now because I like to be prepared and I start doing taxes as soon as the tax season opens. I had a few months, couple months on my hands where I could, you know, gather those funds, make sure that I was able to pay my tax bill and that kind of thing. But I do really encourage that. You also learn from my very hard lesson and very scary lesson, um, and set aside those tax money. Which kind of leads us into our next topic where I want you to make sure that you are separating your money and paying yourself. The first and most non negotiable thing I did was completely separate my personal bank accounts and business bank accounts. Separate bank accounts, separate cards, full stop. We don't want things getting intermixed. If you are a small business owner that you're not doing your own bookkeeping and you're handing that off to someone, it makes sure that we are capturing all of your business expenses. And I'm, uh, not going to sort through a personal bank account and figure out if that grocery run was business or personal or maybe a mixture of both. That's just too complicated. We want to make sure that we are getting every receipt for every expense and making sure we're capturing every expense and having those separate accounts is best. Now, when I first started my business, I was a sole proprietor here in Canada and that was okay. But after about eight months I decided to incorporate. And so legally anyways, my business entity had to be separate from my personal banking. But just save yourself the hassle and separate it. I know it does sound obvious, but you'd be surprised how many small business owners are still mixing the two. And that's okay. I'm not here to judge. I'm just here to make your life easier. When everything is in the same pot, you have no idea how much money your business is actually making, how it's actually performing. If your bank account is actually in the negative from your business, or maybe it's in, um, the positive because of your business end up dipping into business revenue for personal stuff and vice versa. And by the time tax season rolls around, it's probably a mess and highly stressful. So make sure that you're opening up a dedicated business bank account. Everything will be so much clearer when it comes to business credit cards. If your bank is not able or wanting to give you a business credit card right from the start, I suggest, although I am not a, uh, financial advisor by any means, I, uh, suggest that you use a dedicated personal card, meaning the dedicated personal card. The only thing that goes on it is business expenses, not any personal expenses. So you'll still have a personal card and then that personal business card. Hope that makes sense. On to the next topic of paying yourself, make sure you're actually paying the government too. I know I already talked about my lesson in taxes and I know nobody loves this topic, but here's a habit that made it painless for me. Automatically moving a portion of my net income, so that's income after revenue and expenses into a savings account for tax purposes. I've been doing this for eight years now, like I said, although technically only seven years, and have a pretty good handle on how much I will owe in taxes, generally speaking, year over year. So I just automate that flow of money into a savings account. And at the end of every single month, I know that there's going to be a chunk of change. Money moved from my checking account into a savings account. I can't see it, I can't stop it because it's automated and it just happens. Now, you could also have to pay installments for the CRA for taxes or gst. So that can also be automated. And I know that this is such a topic right now, but especially in today's economy, everyone wants to keep as much funds as possible for themselves, for their business, and putting it into other areas. But it's a part of our civic duty to contribute financially to our communities. Giving back, making sure that our schools are getting the fundings, our roadways are getting handled, health care is getting mostly handled, um, those kinds of things. We have to look at it as a positive thing. Even if we want to keep more money as possible. Paying taxes, in my opinion, is a sign of being successful. So in a way it should be celebrated. It's also part of our commitment as being a, uh, B corp, that we encourage all of our clients to make sure that we're paying our fair share, not overpaying, not underpaying, just our fair share of taxes and doing it in the most ethical and moral way possible. Moving on to the next part here is manage your money before it manages you. I know that sounds a little funny, and this is a mantra that I've had for many, many, uh, years now, but tracking your cash flow and your expenses, this is where a lot of business owners check out because it sounds boring or we have other things that we need to be doing. Just like in my first year of business, I was busy signing new clients and doing the work, all those kinds of things. But knowing your numbers is the whole game. I use accounting software for this, of course, if you know me at all. But zero is my favorite. But you have to choose what is best for your business. Every transaction has to get categorized. There's no such thing as miscellaneous categories or anything like that. Everything must go into a category. I do a quick review of this at least once a month now. It used to be weekly, but like I said, I'm, uh, a creature of habit. So I kind of know exactly what my expenses are going to be. It's not necessarily a deep dive, just a scan. Uh, is cash coming in on schedule? Is it leaving on schedule? Are there any surprise expenses? Maybe you forgot that insurance was renewing. Been there, done that. It takes 15 minutes to review everything, but it means that I'm never blindsided and I am on track. Also, cash flow isn't just about profit, it's about timing. You can be profitable on paper and still have a rough month if the money isn't landing when you need it. Especially in Canada where we, generally speaking, unless you're in like two very specific industries, have to report out on our revenue in the period in which it was earned, even if it wasn't paid yet. Similar on expenses, you record those expenses in the period in which it was incurred, even if you hadn't paid it until uh, three months later, for example. Speaking about getting paid, let's talk about invoicing for a second. Getting paid is very important. I talk about this all the time with my clients when I'm up on stages, those kinds of things. I used to hate the thought of credit card fees, so I never wanted to accept credit card payments. That said, uh, over time I decided to hit, that said, over time I decided to take the hit of those credit card fees. I share the fees with the clients who want to pay by card and I also get paid faster. It's an easy way for the clients to pay and it's even better because I get paid faster. No one's forgetting that kind of thing. The few dollars of uh, fees is worth it if it saves my cash flow. And it also saves time on chasing invoices. Invoice reminders get sent out, clients pay, that kind of thing. You may be wondering about the software I use for that. I use Stripe historically and go cardless but I've recently transitioned over to Helsim which accepts both credit cards and pre authorized debits. So your client has a choice of if they're going to pay by credit card or or by their bank account. Moving on to understanding the cash flow and projecting and that kind of thing. Budgeting and forecasting is potentially my favorite thing to do in the world. My husband used to tease me that I had a five year budget planned. Now I don't necessarily do that anymore because our life changes so significantly every three to four years. But I love a good forecasting spreadsheet and seeing how life could look in the next 6, 12, 18, 24 months for my business. But it's important to be very realistic about it. I've seen it where people are confident that they're going to grow their revenue by 10 times in a year, but they forget to account for expense growth. And I think that it's important to recognize if you're expecting that your revenue is going to grow by 10 times, you probably are going to need to hire someone to come and Help you or you have increased advertising spend or something like that, make sure that you're accounting for the flip side of that revenue growth. So every quarter I sit down and look at, uh, what the next three to six months could look like in the business. What revenue do I expect? Do I have any conferences coming up? Are there big expenses such as insurance, for example? Maybe it's buying, uh, a new laptop, hiring a new employee, software renewals? What are the lean months going to be? Are there slow months in your business? I know I'm not a fortune teller and the forecast is never just exactly right, but having a rough picture means I'm able to make better decisions about when to spend, when to hold off, and when to push harder on revenue. It also takes a lot of the anxiety out of the slower periods because I've planned for them and I know that they're going happen. So the last topic here that is important to talk about for me is communicating with the stakeholders of my business. And now, yes, I am, um, a corporation. I have a shareholder that is me. I own my business. But it's also a requirement of our, uh, B Corp certification that I share the financial status of my business with my team members. That is something that I was doing anyways, but I really formalized that process. It helps us get all on the same page. It helps build confidence in the business and also helps me listen to ideas that the team members might have to grow the business or refocus some energies or expenses. But I also share those finance updates with other key stakeholders, such as select family members or my spouse. Mostly because they're my cheerleaders, but also because teamwork and support systems make the dream work. So that's how I run the finances in my business. Separate accounts, monthly check ins, solid invoicing habits, quarterly forecasting, and monthly tax set aside. None of it's super complicated. It's not piping hot tea by any means, but it's how I run my business from the finance perspective. Perspective. It doesn't require that you're an accountant or a bookkeeper. It just requires consistency or consistency with a partnered bookkeeper or accountant that's keeping you on track. You don't have to do it by yourself, but when you know your numbers, you make better decisions, you stress less, and you actually get to enjoy building the business. Of course, if any of this resonated with you, I would love to hear about how you handle your finances or maybe how you don't and you're worried if you're doing it the right way. Drop me a message. I'm on Instagram, Facebook, LinkedIn, wherever you want to find us. And Also, we offer 60 minute sessions where we can talk about your finance systems, habits and growth.