Get (And Keep) That Money, Honey: Pt. 2
Organizing Your Business Finances for Clarity + Power
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Length: 12:33
This wraps up the highly tactical crash course on organizing your business finances for clarity and power. In the next issues, we’re going to be diving into energetics, heart and some of the equally important pieces.
In this issue I talk about:
How to know where every incoming dollar should go
What banks I recommend to make the above happen easefully
What’s to come in the next, juicy episodes
Without further ado, let’s dive in.
And if there’s anyone you believe would enjoy coming along the ride, feel free to share this, and any other blog articles, with them.
(Also, as mentioned, here’s my referral link to Novo, a bank that can automate your income distribution and the link to download the free spreadsheet that accompanies this episode).
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Last time we convened, we were talking about business finances, and I was walking you through a spreadsheet that I have for you — one that gets all of your transactions and your expenses in one place. It shows you where, historically, your money has gone, and where some of your money will go in the future: subscriptions (monthly, annual, quarterly), debt payments — all of that.
This is one of the biggest steps to getting confident in your business. There is something about knowing your money — even if your situation is not where you want it to be — having that knowledge just creates power, presence. You’re able to then make a plan, reach out for the help you need, or also recognize — in another scenario — that you’re actually doing much better than you thought. And it gives you a natural mirror to celebrate how far you’ve come and where you’re going.
So, in this episode, I’m hoping to keep it brief and speak about being more proactive about when your money comes in.
Because right now, we’ve seen where money has gone in the past. We see the subscriptions you sign up for — the monthly, the recurring payments. But now, I’m going to give you a protocol for knowing how every single dollar needs to be allotted and distributed. This is the next level of confidence, stewardship, and empowerment with your money.
So, the method for knowing — when I have a dollar come in, I have a hundred dollars, I have a hundred thousand dollars come in — the method that I prefer to use to know exactly how you want to distribute that, is called the Profit First method.
I use a bit of a modified Profit First method. It’s a whole book — it’s a really cool system. I did a special interest, like, deep dive several years ago, and I’ve been refining the way that I use it and use it with my clients.
So, in Profit First, it’s exactly what it sounds like: you prioritize putting money towards your profit — your business margin — before any other categories. You build that piece in, because what most of us do is we see how many expenses we have, we take a little for ourselves off the top — if we pay ourselves at all, right? You may or may not save for taxes, and profit is not really thought about.
We think about profit — oftentimes, especially as micro businesses — we think of profit, we think of Fortune 500 companies and publicly traded companies. But every business should consider — should look at their profit and build in liquid profit, cash.
So, in Profit First, there are a few key categories: we have Profit, we have Operating Expenses (abbreviated as OPEX), we have Owner’s Draw, and we have Taxes. So these are the four main categories. You can have more — and I, in different seasons of my business, do have separate categories — but these are the main ones.
Profit First doesn’t just tell us to consider profit — it also provides a semi-complex — ooh, sorry — process for determining what percentage of each dollar goes into what category. So I will just give you some guidelines. You don’t have to go into depth with the calculations — I don’t have those in front of me, anyways — but if you are interested, there’s a lot of resources online. You can read the book. There’s even accountants that specifically are trained in Profit First.
So, working with Profit First looks like having, in your bank, four — whether four different sub-accounts or four different bank accounts — separately for each of these categories. And you quite literally move your incoming money into these different bank accounts, so that when you open your bank, you can see directly and clearly how much you have to spend in each of these categories.
So, on the personal finance side, this would be considered perhaps like envelope budgeting — where you have certain categories and you put money in those categories, so you can see how much you have to spend. And this harkens back to when we didn’t have a whole bunch of apps, and people would take little literal envelopes, have cash in them, take them to the grocery store — and that would be their budget for grocery shopping, or gas, or whatever.
We’re doing something similar with business — for business finances. Sometimes we get even less embodied and attached than we do with personal finances. And because budgeting is not talked about a lot — again, in smaller businesses — we think of that for large corporations that are forecasting finances. But we need it just as much — if not more. Sometimes we don’t have as much of a cushion and safety net to tolerate fluctuations, and to tolerate not being accurate in our money.
So, what does this look like, practically?
So, your client pays you — pays your invoice — for $100,000. You will know that 15% of every dollar — so 15% of $100,000, $15,000 — will go to your profit account. And then you know your percentages for the rest: 20 to 30% for taxes, and then divvying up the rest for Owner’s Draw and then Operating Expenses — and those are going to separate bank accounts.
So, when you open your bank, you can see: I have $50,000 in my Operating Expense account. And there is a software I want to onboard — but with training and everything, it will cost X amount. And looking at my spreadsheet, I know that this is my annual software fee — and these are not lining up. So something has to give.
This becomes a two-minute calculation — as opposed to “I think,” I mean, going off of vibes and “I hope it will work out” — and then being stressed once you’ve made the purchase, because you’re not sure if, down the road, you’re gonna hit a road bump — because you spent this money that really should have been saved — in a lot of — for something else.
So, that’s what using Profit First is like in your business.
And on the spreadsheet — that is downloadable — I’ll include the link for that again, of course. I have an example breakdown of percentages. I will say: taxes, you want to be 20 to 30 percent. Profit — you want to start with something. Anything. Even if you feel like you can’t put anything towards profits, start with 1%. You just want to get in the habit of building that margin.
And then you want to look at your Operating Expenses and see what’s making sense. If you’re a service-providing business — you don’t have products, you don’t have overhead — but your Operating Expenses are making up 50, 60 percent of most of your income — you want to really take a look at your subscriptions and the expenses we listed on the previous tabs.
And your biggest asset in setting up this system is having the proper bank.
So, I have two recommendations:
One is Novo. I will provide a referral link — that will give you money and give me money — but I’ve used them for years. They have a sub-account system — so you have one bank account, one account number for your checking and everything — so one interface that you’re logging on to — but they have sub-accounts. So you can set up these envelopes, these categories. And they also allow you to automatically move money — like, when you have inflow — so you can set up the percentages to sub-accounts. And when you have your $100,000 hit your account, Novo will automatically move them into the correct sub-accounts.
The second recommendation is Relay — which does not have a referral program, but is also tremendous. They get even more granular — you actually have multiple accounts under your one company profile. So your different OPEX, Profit, etc. accounts actually have separate routing and account numbers, and can be designated as savings or checking.
I do really like Relay — I’ve been using that one more recently — and I do love that level of granularity. But I’m a numbers geek. I’m a tech geek, right? For many people, Novo will be the simpler, more straightforward option.
So, what do you do from here?
From here, you can just be with the spreadsheet. I recommend getting into it at least once a week — to add transactions — to continue to get this embodied sense of your finances. To ask yourself: Are the subscriptions I have still working for me? And from this time spent in the spreadsheet, you may recognize: I want to move this expense, do this, do that. Okay — I am NOT charging enough for this, to make sense with how much of an Owner’s Draw I’m gonna be getting. Oh — I have to really focus on working down my debt.
And that’s one thing I will say: In Profit First, they talk about using your Profit category to pay down debt. So, until your — your pet? — your debt is paid off in your business, they say: use like 99% of your Profit category to pay down that debt. And then, once that debt is paid down, you can begin banking that profit for pure profit.
I should have explained this earlier — profit. Because that’s Profit One — is probably the most — maybe confusing. Profit is used to reinvest back into your business. It’s used to create a cushion. It’s your savings, to a degree. It can be bonuses for team members. It could be education for you. It could be new software, new hardware, rainy day fund — that just gives you a little bit extra buffer. It could be money that you invest part of.
So, you have the spreadsheet — fill this out. Do this work. And you should feel clearer around your finances moving forward.
So, on our next episode, I will dive into less tangible elements of building out this budget. I may give some rapid-fire tips — some — excuse me — some ways to think about this work, and to really calibrate your system to this next level of stewardship.
Because I’m telling you — this is one of the most powerful things you can do for your business and life in general — when you look your money situation in the face, and then meet it with acceptance, and then move into proactive action. It just transforms your inner landscape, transforms your relationship with your business, and provides so much data and clarity.
I worked with one client — who, after we strategized, recognized that she needed to significantly update her prices. She did that, turned that around, and has been able to bring on a second team member within several months — and is feeling good and expansive — and can show up even more joyfully for some of her more needy clients — because they are being charged appropriately with their usage.
I have seen this time and time again. I’ve seen this with myself — I’ve tripled my prices — and see that I can show up more fully and more joyfully.
So, I really encourage you to take the time to fill this out, to navigate through this, to let the data speak to you — and see what it wants to bring forth.
And in our next — I was a session — in our next audio blog, I’ll dive into some little anchors and hooks that can help you reframe money and the way you view it.
This is Edie. Obviously, you’ve been here for 13 minutes — but it was a pleasure to spend this time with you. Be well — and I will talk to you soon.
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→ I am beyond thrilled and delighted to announce that I have launched an arm of my business that has been percolating for years. Learn more here.
→ I have officially kicked off work on a book I am collaborating on with several other authors. Journal of a Visionary will be dropping this summer. More info to come!
This article was written by Edi Oduraa, founder of Via de Oduraa, where we help creative + wellbeing brands scale without losing their soul through fractional COO services.
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