Last week’s blog covered two money related topics: Incorporation and Business Insurance. There were also links to several free resources that you can explore at your own pace.
This week’s blog covers finding the right business bank account, and introduces the concepts of cash flow and overhead.
Finding the right Bank Account
A common pitfall for people starting a home-based business is mixing up their personal and business finances, by trying to track everything in one bank account.
I strongly recommend getting a separate bank account for your business. It helps you track how your business is doing, in other words are you actually making any money? And it makes things a lot easier come tax time!
Shop around by visiting your communities’ banks and credit unions, you can even check out online banking options if that’s within your comfort zone. Explore and find out what type of account is the best for your business. Banks and credit unions all try to offer competitive advantages, find the one that provides an affordable option for your type of business.
If you’re creating a high-volume business, with lots of transactions, it may be worth it to become a member of the Canadian Federation of Independent Businesses (CFIB). Membership benefits include lower banking fees with partner financial institutions.
When I became a veteran, one of the first things I did was to shop around for a bank for my business. In one bank, the Small Business Accounts Manager was more interested in telling me about his upcoming vacation than in telling me about the services his bank offered. In another bank, I ended up talking to the Branch manager. She asked me about my business, which at that time was a vague idea of doing what I loved best in the military, speaking, training and writing.
I planned to help others learn strategies and tactics to help them, their communities and organizations thrive. Based on what people kept asking me to talk about in my last few years in the military, I thought my target audience might be women in search of work life balance. I didn’t have a formal business plan, just a vague dream of a business idea. The Branch Manager liked what I shared, and ended up offering me a line of credit and a credit card to help me launch my business!
It’s worth shopping around for a financial institution. Tell people what you’re interested in. Sometimes, people will offer help before you even realize how useful that can be. If you ask for what you want, you might just get it!
Bonus Tip: For some timeless advice check out Carol Ann Budd’s article “Tax Tips for Business Owners.”
Bonus insight: Take some time to reflect on who your ideal clients are. I was wrong in my initial thoughts on this. Over time, my ideal clients revealed themselves to me.
Cash Flow and Overhead
I have several entrepreneur models in my family. My mother-in-law ran a business selling natural products out of her home for more than 30 years, my sister-in-law is a serial entrepreneur with many creative based businesses, my dad started two engineering consulting firms, and my husband started his business 5 years before me. I also have two uncles who are entrepreneurs and an aunt who put in decades as an incredibly successful Mary Kay saleswoman.
One of the lessons my family taught me was to keep my overhead low, until my cash flow is going well. In other words, don’t rush to buy a new desk, fancy giveaways, a brand-new car, etc. They taught me to keep my initial expenses low.
My biggest expenses in my first 16 months of business were buying a laptop, getting incorporated, professional insurance and buying some business cards from a local printer. I decided early to shop local whenever possible! Did I mention that one of my uncles runs an incredibly successful printing business in Saskatchewan?
Overhead is the name that accountants and bankers use to describe recurring costs that must be paid on a regular basis, whether you have any sales or not. This can include, but is by no means limited to: rent, insurance, payroll, and software licensing fees.
I still haven’t bought any pretty branded things to give away like pens or USB sticks. I use as many free resources as I can, such as free LinkedIn. I have not spent a penny on marketing or advertising. My marketing is word of mouth (in person and on social media) and/or done by strategic partners. I even built my own website, which for several years was basically an online business card.
Last year, when I was ready to start scaling up, I began investing in getting outside help and paying for software to help me reach a larger audience for a new series of online courses. This included my website getting a professional makeover – while still using the cost effective Weebly platform that I know and love.
Cash Flow is literally the cash coming into and leaving your business. This “cash” may all be electronic, it’s anything that counts as money. For example, if you sell 100 stickers at $5 each, you’ve got incoming cash flow of $500.
You also have expenses, for all the materials used in creating those stickers, from the electricity for the machine that prints the stickers and the printer (overhead) to the paper used for printing. The bills you pay to cover those costs are cash flowing out of your business.
Continuing with the sticker example, it’s important to allocate some of your cashflow to materials, and some to overhead. Calculating what you’re going to pay yourself is also important. If you end up with zero cash after paying for the materials and other overhead, and you don’t pay yourself anything, then you’re not making money with that part of your business.
And that’s OK, as long as the stickers are a loss leader, that is a way to get the word out about your business, to attract clients to buy your higher priced products and services.
Consultants and other service providers may offer “free” services and resources, to help attract clients. For example, my free offerings are generally related to networking. It occurs to me as I edit this that my blog is also a free offering!
I’m curious, what’s the best financial advice you’ve followed so far?