April 2021 #Smallbizchat: The Real Truth Around What Holds Businesses Back When It Comes to Finances

#Smallbizchat Podcast LIVE is a monthly video interview show where small business owners can get answers to their questions. The focus of #Smallbizchat is to end small business failure by helping participants succeed as your own boss. Please join us live every third Wednesday of the month from 8-9 pm ET Live on my SmallBizLady Facebook Page, YouTube Channel and LIVE on Twitter.  

Profit First Strategies and Accounting Hacks Business for Small Businesses

Susanne Mariga, CPA is a Certified Public Accountant and a Certified Profit First Professional and author of Profit First For Minority Business Enterprises. She has 20+ years of experience helping clients achieve long-term financial stability by leveraging tax strategies. For more information: www.marigacpa.com

SmallBizLady: What mistakes do entrepreneurs make in managing their finances?

Susanne Mariga: One of the biggest mistakes that entrepreneurs make in their finances is not being intentional as to what their end goal is.  They focus on the accounting equation that their accountant teaches them:  Revenue – Expenses = Profit and they focus on sales, when, it is the bottom line that really matters.  They fail to create a system to help them meet their financial goals.  

The second biggest mistake that entrepreneurs make is that they try to cut corners and do everything in-house or by themselves.  They end up either focusing on what is comfortable and never have time to examine the bigger picture and work on this.  By putting the right people in the right places and bringing in help when it is necessary, they can scale more effectively. You’d be surprised how many entrepreneurs balk at the idea of paying $200 a month just to get their bookkeeping done. Imagine, how many hours they would spend doing their own bookkeeping when they can focus on gaining new customers and building their influence and empire.

The other mistake is remaining loyal to the things that no longer drive them forward.  This could be a team member, a vendor, or even a family member.  When we fail to put people in places where they can soar, not only do we hold ourselves back, but we hold the other person back.

SmallBizLady: Do you think Minority Business Enterprises have different financial challenges than other businesses?

Susanne Mariga: This is a complicated question.  MBEs have different financial performance or result in comparison to non-minority businesses.  Statistics prove it every day, and I have seen it in my own practice when I compare minority business performance results to that of non-minority business enterprises, but they don’t necessarily have different financial challenges.  Where they differ is how they approach the challenges and often the customers that they pursue, the prices that they offer, and the circles that they remain in.  

For my book, I interviewed several very successful MBEs. 7 figure revenue earners plus. When I first began my research, I had a hypothesis that it was the color of our skin that held us back.  When I interviewed each of the extremely successful entrepreneurs, I made it a point to ask them, what was their biggest hindrance or challenge in their success. I had expected at least 1 or 2 to tell me it was the color of the skin or being overlooked for an opportunity because of the inability to relate to the hiring manager.  Interestingly, not one of them said that.  Each one faced a different challenge. Some said it was learning to understand their numbers, some said it was learning to manage a team, some said it was learning to trust their own unique spark, but no one said it was the color of their skin.  

My conclusion is, yes although discrimination does exist, the bigger hindrance that we have as MBEs is how we see ourselves when we enter a room when no one in the room looks like us.  Currently, it is our own view of our self-worth that hinders us or propels us.  I also think there is an element of trauma DNA where we have inherited the stories that were told to us that were passed to us from generations, and the abuse of people of color that we see within the Media that further makes MBEs feel that they are constantly up against the world, as well as, as the shortage of examples in our communities of those that have achieved success outside of sports, because of their brains and thought leadership. Good thing we are changing this in our generation!

SmallBizLady: What is Profit First?

Susanne Mariga:  Profit first is an amazing cash management system that works with our inherent biological and psychological makeup.  In school, we are taught that revenue minus expenses equal profit.  However, when we focus on this traditional generally accepted accounting principle or GAAP equation, we teach our entrepreneurs to focus on sales. Sale to whoever will buy. Then we teach them to be responsible and pay their bills.  Then we assume that profits will naturally follow.  Unfortunately, this is very rarely the case. In fact, we create is a volume-based business, where negative margins beget negative margins.  Hence why 65% of businesses fail within 10 years.  

In Profit First, we invert the traditional accounting equation.  Revenue – Profit = Expenses. We literally take our profit first.  We do this by creating bank accounts that act as holding accounts based upon our intentions.  Revenue, Profit, Owner’s Pay, Tax, and Operating Expense bank accounts. Our corporate discretionary spending is limited to the Operating account, creating an illusion of scarcity, forcing business owners to work with their innate psychological and biological makeup, and intentionally creating profitability.

The Truth About Running a Million-Dollar Business

Kathy Svetina is the founder of NewCastle Finance, a company offering Fractional CFO services to women-owned businesses. For nearly 14 years she did senior-level financial planning and analysis for Fortune 500 companies. She saw firsthand how financial information is used to drive those companies forward and wanted to offer those same insights to small businesses so they can be healthy and sustainable. For more information: https://www.newcastlefinance.us/

SmallBizLady: What do small businesses miss in their finances?

Kathy Svetina: The most common thing that I see is the lack of financial planning – that means short and long term. The reason why this happens is usually that they either don’t understand why it’s needed or don’t know how to do it.

SmallBizLady: Why is financial planning needed?

Kathy Svetina: Financial planning (such as a budget) is not just a numbers exercise that you go through and then forget about it. It’s an opportunity to take a step back from your day-to-day involvement in the business, look at it from a bird’s-eye view, and make a path to follow. It’s there to support you in decision-making and act as your compass. 

It helps you: 

• view the direction that your business is headed towards
• find financial holes and be prepared or even fix them before they happen
• figure out where you want to go and how to get there
• identify new opportunities so you can expand on them if you so choose

SmallBizLady:: But specifically what are the issues that you actually need to plan?

Kathy Svetina: It does not have to be complicated. You can use a 3x2x3 approach where you plan for 3 things, 2x a year, and use a 3-step process to get to the numbers. 

3 things to plan: 

• Sales/revenue 
• Expenses
• Cash (cash flow) 

It’s important to project your cash separately since sales and expenses don’t always immediately impact cash. The difference lies in the timing of when the business transaction happens and when the cash is actually received for it. Example: doing a project that is paid in installments. 

2x a year:

• Strategic, long-term planning in the Spring (3-5 years). Gives foundation to Fall planning.  
• Detailed, short-term planning in the Fall. This is dedicated to doing next year’s budget. Gives foundation to Spring planning  

3 Steps on How to Do It (great for Fall planning): 

Step 1: Start with the data you have (history)
If you’ve been in business for more than a year, you already have a foundation to build on: your actual numbers. Gather as much historical data as you can such as contract information, product sales, headcount, and expenses. That’s your starting point. 

Step 2: Revise with what you know has changed
Did you start offering a new product or service? Include that. Signed a new client 3 months ago? Include it. You’re not spending as much on marketing as you thought? By all means, reflect that in there as well.

Step 3: Define and include your goals
This is the most fun part of the process! You get to set goals for your business and put numbers to those goals.

For example, if you were to start a new product line/service offering you would plan for:

1. start date of the offering
2. how much you think you’ll sell
3. price per product/service
4. expenses associated with the new offer

Items 2 & 3 will give you the projected sales.
Item 4 will be your expenses associated with sales.
Item 1 will tell you when you will see the impact of this offer (keep in mind that you might see expenses first before any sales, so reflect that in your plan!)

Top Ways to Get More of Your Ideal Clients & How to Design an Effective Website

Billy Polson, BS, CSCS, is a nationally recognized performance coach, fitness entrepreneur, motivational speaker, and the founder/co-owner of DIAKADI. As a fitness performance coach, he was named by Men’s Journal Magazine, one of the Top 100 Trainers in America, as well as one of the Top 10 Trainers in the Bay Area by the San Francisco Chronicle. Peers and other fitness professionals look to Billy as a fitness advisor and business coach. In 2015, Billy co-founded DIAKADI’s Business Movement, which continues to assist hundreds of fitness professionals worldwide with building and growing the most successful fitness businesses. https://www.thebusinessmovement.com/

SmallBizLady: What are the leading ways to immediately connect with your target clients on your website?

Billy Polson: Share more ‘Day in the Life’ photos and videos on social channels, websites, marketing collateral. It helps you become more relatable to your target audience. Next, any information you share with your target audience needs to be valuable and offer “life upgrading” information. They will look to you as a credible resource in the future if you share high-quality information. 

SmallBizLady: What can business owners do right now to boost the SEO for their websites?

Billy Polson: Know your target customer and keywords. Then consider the placement of the keywords. For example, use keywords in headers, photo captions, the names in URLs etc. Next, understand and expand your overall digital presence online. Social media, website, news outlets, online networking groups, etc. Then boost your interaction with clients online with more frequent company updates. 

SmallBizLady: What is do business owners need to understand about customer service when building a successful service business?

Billy Polson: I would say our customer experience. As a customer, you immediately feel the connection business forms with its clients from the moment you walk into a store or speak to a team member. My business DIAKADI was named ‘Best Gym/Trainers’ in San Francisco for 14 Years that only happens when you focus on your customer. Business owners must work to guarantee that this first impression, as well as every interaction that follows it, directly connects with both the personality and the pain points of their clientele and continues to reconnect with them throughout their lifespan with the company.

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