Best Financial Practices for Your Online Business
When it comes to following best financial practices for our online businesses, the first thing that comes to mind is likely going to be bookkeeping. But have you taken the time to think beyond bookkeeping?
Bookkeeping is a significantly important compliance-side financial practice, but at the end of the day, it's a record-keeping system. It keeps your numbers organized for reporting on your tax return next year. It's focused on the past - what has already happened.
I invite you to think about PROACTIVE financial practices that you may be missing out on! Practices that could mean the difference between the success or failure of your online business venture.
When I said "think beyond bookkeeping," it's likely that a lot of you thought of budgeting next! That's a good thing! Budgeting is a critical financial practice that is at the core of everything I teach here.
It's so important to take the time to plan ahead of your expenses! Don't get lost in projecting income and trying to estimate off of that. Instead, take a list of your actual current expenses and look at how much money you currently have in your account. Start assigning those dollars to jobs based on the most pressing expenses you have coming up! Make a plan with the money you have and watch your business (and your life!) change over time.
When making a budget, you want to make sure you cover all of your bases. Expenses is the obvious one, but that's the LAST thing you should be assigning your money to! You'll also want to set aside funds for profit (why wait for profit to be the leftover?), taxes, and paying yourself!
When you've started to budget for all the important areas of business (above), you'll start to get a much better idea of how much money your business needs to earn in order to reach all of your goals. When you've determined your business' revenue goals, you'll want to break it down and create an intentional plan to reach those goals!
My favorite ways to plan for revenue are in quarterly and monthly chunks, but weekly or annually can work too. The important thing is to know how much you want to make, and then take a look at all your potential income streams.
How much of each do you need to sell in order to reach that goal? Is it even feasible, or do you need to change your prices or add new income streams?
Taking the time to figure out realistic sales goals is a critical financial practice for online business owners to actually reach their overall business revenue goals!
I'm always receiving questions about pricing - knowing how to price smartly is definitely an important financial practice that you'll use way more than you think! I am constantly revising my offers, products, and prices.
But, here's the thing...even though I'm probably breaking a hundred accountant rules, I rely a lot on gut instinct to set prices. Yikes!
Nah, don't panic. There are some completely objective, logical pieces of the pricing puzzle that you can work through in order to inform that gut instinct of yours.
First off, you want to make sure you know exactly how much your offer costs to provide. For products, you're obviously looking at cost of materials and the labor that goes into creating them. I work more with service providers, though, and I acknowledge that this can be a little trickier!
Beyond that, you'll also need to consider what elements of your offer you can charge a premium for! How unique is your offer? What credentials and experience do you bring to the table? What kinds of results are your clients going to receive? All of this goes into your markup!
(This may just be opening up more questions than answers in the pricing arena, so let me give you a little spoiler: I've got a resource that can help you with this! In fact, my Simple Service Pricing Calculator is just one of eight total tools you can find in the CFO Starter Kit. Learn more about it here!)
Forecasting Cash Flow
I said earlier that we don't want to get lost in projecting income for budgeting, but that doesn't mean we can't look forward to our future deposits! Forecasting cash flow can be an incredibly valuable financial practice, especially for online businesses who deal a lot with client deposits and payout delays.
I personally hate guesswork, so I don't often forecast sales, necessarily. Instead, when I have a reasonable expectation of an inflow of cash (client payments, affiliate payouts, digital product sale payouts, etc), I like to record it in spreadsheet that helps me look to future months in the year.
This is especially useful because I have retainer clients and clients on small payment plans. By being able to plan ahead and see what my cash flow is going to look like with payment timing, I can see if I'm on track to reach my revenue goals or if I'm going to need to find additional sources of cash during certain points of the year.
Here's an example of my cash flow forecasting spreadsheet (you can get your own copy in the CFO Starter Kit!)
Planning For Investments
A lot of financial experts will talk to you about cutting expenses and limiting spending, but what about when it's time to add in a new cost? How do you know when you're ready? How can you do it guilt-free?
Thinking through a new expense before purchasing is how you can make sure you're making an investment and not an impulse buy!
In my experience, irresponsible spending disguised as "investments" can be the downfall of online business owners. And that's what makes this such an important financial practice!
Before adding a new one-time expense, assess your capacity to pay for this in cash all at once! Would it be wiser to save up for a little longer and avoid a payment plan? Most often - yes, it would!
If you're adding a new monthly expense, you'll have to consider your long-term capacity to pay. Does it fit into your current spending budget? Do you have to start allocating more money to expenses (which usually takes away from money you can pay yourself or set aside for profit)? Or do you need to increase your monthly income first?
You'll want to confidently know the answers to these questions before purchasing! And then you'll want to confidently know that this purchase is worth making - how guaranteed is the "return on investment?"
This is another commonly thought of financial practice - how can I keep my financial records organized?
Beyond that, I'd like you to consider the entire financial backend of your business. How organized is it?
Are your bookkeeping records organized? Do you save receipts and invoices somewhere you can find them again? What about your client management system?
Do you use twenty different payment processors? Do you have multiple business credit cards that you don't need? Can you set up some of your monthly payments to go out automatically?
Are you signed up for too many subscriptions and payment plans to keep track of? Are your business and personal expenses mingled across your various bank accounts?
Finding ways to stay organized and simplify the backend of your business is just as important of a financial practice as running the numbers themselves.
Legal & Tax Compliance
Ah, here we go - this is where bookkeeping belongs! Despite my discussion of financial practices beyond bookkeeping, making sure your online business is legally compliant and tax-friendly is still important! Skipping this stuff can have profound consequences down the line, so prioritize prevention!
Make sure your contracts, disclaimers, and terms and conditions are in place. Do your research to make sure your content isn’t unintentionally plagiarizing or violating any copyrights or trademarks.
Take some time to explore your state's website and make sure you have the licenses, permits, and certifications you need to run your business where you live.
Find a tax preparer to help you make sure you're preparing for everything you should be. And have a sales tax expert make sure you don't need to be collecting sales tax!
Open a separate bank account for your business activity. Consult a legal professional to determine if filing to become an LLC is necessary (it's usually not, in the beginning) or if you should be looking into general or industry-specific business insurances.
This stuff is a little annoying to deal with up front, I understand. I'll admit, I've neglected a few steps myself at one point or another! But don't let it completely get away from you.
The CFO Starter Kit
Clearly, there's a lot more to financial wellness as an online business owner than just bookkeeping. And, if I really wanted to dig around in my brain, I could probably come up with even more little practices that could be fun (if you're a nerd, otherwise, "useful") to implement into your business routines. But these really are some of the big ones!
So, how can you get started easily?
I could tell you to create a bunch of worksheets, spreadsheets, checklists and calculators to help you streamline the process and make it easier to keep all these practices at the forefront of your mind...
…but that'd be silly. Because I already made you one.
The CFO Starter Kit is EIGHT resources in one that are specifically designed to help you kickstart your role as Chief Financial Officer of your own online business.
It's a resource that many have told me I should charge you for, but I believe you should be able to start all of this for free, today.
So grab your FREE CFO Starter Kit right here!
Until next time!