Posts filed under ‘Accounting’

Profit Lessons I’ve Learned…

Creative Commons License

Creative Commons License

This week, I’m sharing lessons that I’ve learned during my five years as a small business owner.  On Tuesday, we discussed Productivity Lessons.  Yesterday, we talked about People Lessons.  Today, we are going to break down Profit Lessons I’ve learned.  These are the lessons I’ve learned about business finances.

1 – Find a System that Works for YOU!

A lot of people’s accounting problems stem from disorganization of paperwork.  You need to find a system for keeping receipts, invoices, and statements nice and neat.  We’ll be having a series on organization, so I won’t delve into that too much.  But, think about how you are going to keep everything in one place.  Will you use file folders labeled alphabetically? By month?  How often will you sit down to do your accounting?  Will it be weekly? Monthly?  Can you commit yourself to a day and time systematically?  What software will you use?  What is working with your current system?  What is not?  The more disciplined you are with your organization and your tracking, the easier your accounting will be.

2 – Know your Numbers

I’m going to say it again: hire an accountant for the dirty work (taxes and complicated accounting issues).  But, KNOW your numbers!  If you aren’t on top of your dollars and cents, then you aren’t on top of your business.  Take time to learn the basics of how money flows in and out of your business.  You are a business owner first and a (    fill in the blank     ) second (in my case invitation designer.)  It’s understandable that you may not feel comfortable with numbers (many people aren’t) but you can educate yourself.  That is the beauty of the world we live in!  Take a class; read a book.  Learn what the numbers are telling you.

3 – Take Care of Yourself

I’m going to share with you one of the mistakes I’ve made as a small business owner.  In my third year in business, I made the leap to move my business out of my home and into a beautiful studio in the Capitol Hill neighborhood of Seattle.  I LOVE my space.  In my eagerness it the beautiful office that it is, I reinvested most of my income back into the business.  After all, that’s what all small business do, don’t they?  They pour their money right back into the business so that they can grow organically, right?  Well, not necessarily.  First, they take care of themselves.  You must pay yourself, and save for a rainy day.  Then they invest in their business.  If you can’t do this, then rethink your strategy (hint: look at your numbers)

4 – Cash is King

Now, more than ever, we realize what this means.  In this economy, the businesses that have the cash are the ones that will make it through.  If your cash is tied up in making debt (credit line, business cards, loans) payments every month, then you are going to have a tough time investing in yourself and the business.  What I’ve taken from the 2009 recession is that whenever I have an opportunity to squirrel away some cash I do.  A few weeks ago, I had 4 nice contracts come in completely unexpected (they were all last minute fall weddings – yahoo!)  Since I hadn’t planned for that, that money is serving as a cushion for any unexpected slow-down in the months to come.  This recession is not over.  So, when you get those little windfalls, squirrel it away.

5 – A Tax Deduction = Business Expense = Less Income = Not Always a Good Thing

Be very careful with thinking that business expenses are a good thing.  Yes, you get a deduction from the IRS.  But, this is still a hit towards the profitability of your business.  And, if your business is not profitable you won’t be in business long.  I see too many small business owners charging dinners and networking events with the thought that “this is a tax write-off”.  The next thing I hear is that they are having problems paying their rent.  And, the government isn’t going to give you a refund big enough to make up for that.

And, with that… may you prosper!


July 23, 2009 at 6:00 am 3 comments

Writing Your Business Plan, Step 11: Financial Plan (Future)

Today we are writing the last part of the Financial Plan: The Projection.  A projection, or forecast, is written as a goal-setting tool for the financial future of your business.  It serves as an estimate of your company’s ability to be profitable.  It is great information for potential financiers of your business, and a great exercise for you to plan your financial road map.  If you don’t have a map, how do you know where you are going?

The following 5 templates are taken from SCORE, SBA small business counselors, and are spreadsheets that will constitute your financial plan:

12-Month Profit and Loss Projection

This projection shows your expected income and expenses by month for the next year.  You may find it helpful to use the sales forecast that you created in Step 6 during your marketing plan.  You’ll want to make sure to explain any assumptions or exceptions in your projection.  For example, the wedding industry generally has seasonality in its revenue stream.  You’ll want to explain those variations in your projection.  This is the template from SCORE: 12 Month Profit and Loss Projection.

Three-Year Profit Projection (Optional)

If you are seeking bank financing or outside investment, you’ll want to provide a three-year profit projection.  This will be important to your financiers in determining the long-term viability of your business.  This is the template from SCORE: Three-Year Profit Projection.

Projected Cash Flow

The Cash Flow Projection is probably the most helpful tool for small businesses.  The number one reason most businesses fail is poor cash management.  With the seasonality of the wedding industry, having a good handle on the ins and outs of your cash stream is very important.  You’ll want to use the profit and loss statement to determine where you expect your cash to come from (sales, loans), and where you expect it to go (expenses, debt repayment).  Here is the Cash Flow Projection from SCORE.

SCORE recommends explaining your major assumptions, including:

  • If you make a sale in month 1, when do you actually collect the cash?
  • When you buy inventory or materials, do you pay in advance, upon delivery, or much later?
  • How will this affect cash flow?
  • Are some expenses payable in advance?
  • Are there irregular expenses, equipment purchase, or inventory buildup that should be budgeted?

Projected Balance Sheet

Your Projected Balance Sheet will show your assets, liabilities, and owner’s equity as expected for the 12 months you’ve covered in your 12-month profit projections.  You’ll want to take a look at your current Balance Sheet (remember we did this in Step 10) and use your profit projections to determine what your balance sheet will look like in a year.  This is the Projected Balance Sheet from SCORE.

Breakeven Analysis

The Breakeven Analysis enables you to determine what you have to earn in income to recover the costs of doing business.  This is a powerful tool for all businesses, but more so for new businesses.  Here is the SCORE template for Breakeven Analysis.

Next Step

Tomorrow we’ll be discussing the appendices and addendums to your business plan.  These are the items that go at the end of your plan to give it just a little more meat.

May 27, 2009 at 6:00 am Leave a comment

Writing Your Business Plan, Step 10: Financial Plan (History)

Creative Commons License

Creative Commons License

We are in the final section of the Business Plan, the Financial Plan. You’ll recall that we have broken down the financial plan into 3 parts:

  • Preparation (what to prepare before writing the financial plan)
  • History (looking back on the finances of your business)
  • Future (looking forward on the finances of your business)

Last Thursday in preparation for today, I had you prepare the following information:

  • Assets – what do you own in your business? (computers, inventory, etc.)
  • Liabilities (AKA Debts) – what do you owe in your business?
  • Equity – how much have you invested (or has someone else invested) in your business?
  • Revenues – how much did you make in sales in 2008? (this can typically come from your tax return)
  • Expenses – how much did you spend in 2008? (also should be traceable to your tax return)
  • Cash – where is that cash register? (not the physical register, but that paper thingie that tracks which checks you’ve written)

We are going to take these numbers and create the financial history of your business: your financial statements. Because I don’t expect you to be an expert accountant, I encourage you to ask questions (post a comment below) or talk to your accountant to put some of these details together. If you use a program like Quickbooks, you’ll be able to pull some of these reports from that.

The “History” of your business

You’ll want to include the balance sheet and income statement for your business going back 3 years. (If you’ve been in business less than 3 years, then provide what you can.) I’ll provide a little Accounting 101 on some of these financial statements.

Balance Sheet

The Balance Sheet is a snapshot of your business at any given moment. It shows what you own (assets) and what you owe (debts or liabilities). The balance sheet basically looks like this: Assets = Liabilities + Owner’s Equity

In plain English:

What you own = What you Owe + What you have invested in your business

Here is an EXCELLENT template in Excel for your Balance Sheet, courtesy of SCORE.

Income Statement

The Income Statement (also called the Profit & Loss, or P&L) gives the history of your business performance in a period of time. Typically you’ll create this for the most recent year. It typically looks like this: Revenue – Expense = Net Income or Net Loss

In plain English:

Sales – Expenses = Profit or Loss

Here is a RAD template in Excel, direct from the Microsoft website.

Personal Financial Statements

If you are applying for a loan with a bank or seeking investors, you should also include your personal financial statements. Bankers may want you to personally guarantee you commitments, depending on the size of the loan. For example, if you own a portion of your home, this may become collateral for your business loan.

You’ll want to list out your personal assets and your personal debts:


  • Home or Property you own
  • Automobiles that you own (that are paid off)
  • Any investments that you’ve made


  • Loans – personal (mortgage, auto, student, etc)
  • Credit Cards

I recommend including all of the details of your debts including to whom the loan is payable, the original amount, the outstanding amount, the interest rate, and the monthly payment.

Here is an AWESOME template, also from SCORE, for personal financial statements.

Bonus Stuff

If you are applying for a loan or seeking investors, you should have some additional financial information prepared. Financial ratios allow comparisons between some of your numbers. (Here is where we go really nuts with the math and the Excel – but WOW – it is powerful information.) For example, showing what your cost of sales is in relation to your sales gives your investor an understanding of your profit margins.  Here is a GREAT template, also from SCORE, that helps you put together some of these ratios.  If you are not seeking outside financing you may decide to opt out of this information.

Next step

Tomorrow, we’ll be wrapping up the Financial Plan and digging into the financial future of your business.  So, start thinking of what the future of your business will be!

May 26, 2009 at 6:00 am 1 comment

Writing Your Business Plan, Step 9: Financial Plan (Preparation)

Creative Commons License

Creative Commons License

Did you fire up your calculator?  We are going to work through the financial plan.  This is the final segment of your business plan.  HURRAH!  It requires some prep work and is a bit lengthy.  So, we are going to break this down into 3 posts:

  • Preparation (what to prepare before writing the financial plan)
  • History (looking back on the finances of your business)
  • Future (looking forward on the finances of your business)

First: Preparation

The financial portion of your business plan requires some planning and preparation.  Let’s break it all down.  (NOTE:  This is just the summary in preparation for the actual writing of the financial plan which will take place next Monday and Tuesday.)

Soooo… here is what you are going to need to know.  We’ll assemble this into financial statements next week:

  • Assets – what do you own in your business? (computers, inventory, etc.)
  • Liabilities (AKA Debts) – what do you owe in your business?
  • Equity – how much have you invested (or has someone else invested) in your business?
  • Revenues – how much did you make in sales in 2008?  (this can typically come from your tax return)
  • Expenses – how much did you spend in 2008?  (also should be traceable to your tax return)
  • Cash – where is that cash register?  (not the physical register, but that paper thingie that tracks which checks you’ve written)

Spend the weekend putting these numbers together.  Next week, we’ll be putting them into the “magical” financial statements of your business.

Come back tomorrow for a little business plan break.  We’ll be featuring another fab industry insider.

May 21, 2009 at 6:00 am Leave a comment

Why Small Businesses Fail

Courtesy of Barbie Hull Photography

Courtesy of Barbie Hull Photography

Before we continue with steps 9-12 in the writing of our business plans (which involve financial statements) I thought it would be good to reflect on why it’s important to know your business’s financial details.  Writing the financial portion of the business plan is usually the most challenging.

The wedding industry is made up of the most creative and artistic individuals.  Individuals in the industry can be wildly successful without any business background.  Unfortunately, many people are told “hire an accountant and let him or her do the dirty work.”  While you MUST indeed hire an accountant, you MUST also understand the numbers of your business.  And, I’m here to tell you: DO NOT BE SCARED.

I have an accounting degree and worked for an accounting firm right out of college.  This makes me no different from you in running a successful business.  None of what I learned is a mystery.  None of what I learned is rocket science.  I might have a little more practice, but that’s all.  You practice at yoga, you practice at photography, you practice at design, you practice at baking.  With practice, you can understand all of the numbers of your business.  And, you can become even better. I’m not an expert.  (Here’s a secret: no one is an expert.)  But I practice a lot and I am constantly learning.

Fortune Small Business recently had a great article on “Why Businesses Fail“.  I recommend you read the entire article here.  (It’s simple, to the point, and so true.)  In it Jay Goltz gives a real life example of a business that has had had strong revenues and loyal customer following, but has LOST MONEY for the last 8 years.  Jay believes that 70% of small businesses go broke by their 10th anniversary because they don’t know their numbers.  He highlights the following:

  • Entrepreneurs tend to concentrate on what they love, whether it’s the artist who paints but doesn’t spend any time marketing or the chef who lives in the kitchen and ignores her financials.
  • Every business owner needs to be his or her own CFO.
  • Delegating that task to a bookkeeper or an outside accounting firm means putting your life into their hands.
  • [The accountants] generally don’t know the ins and outs of your business well enough to make critical decisions.

So, before we embark on the financial elements on our business plan take the day to reflect on the things you want to practice.  It is dangerous to strive for perfection.  Strive instead for excellence.  Excellence is achieved by practice.  Practice is the journey, not the destination.  Practice is something we DO.

I’ll see you back here tomorrow… ready to practice with your calculator! 😉

May 20, 2009 at 6:10 am 4 comments


Use Google? Subscribe in Reader:

Follow us on Twitter