This is where the proverbial rubber hits the road to entrepreneurial success.
Have you ever heard of a house built on a foundation of sand?
Does not sound very right and proper, does it?
Now, if you’re sitting in your comfortable chair thinking about what point I’m trying to make here, I won’t leave you hanging long.
I picture you, fellow entrepreneur, as an artisan of some sort. A wizard at sales, a handyman extraordinaire, an expert in a specific science.
Creating a valuable contribution to the world.
You gathered up the courage to do the thing as a self-employed human.
Casting off the chains of “normal employment;” of “working for the man.”
Make no mistake, ladies and gentlemen: this is brave.
I see you, figuring it out and making enough money after a ramping-up period to actually withdraw some and pay yourself and your bills.
What’s next?
If someone asked you what your cash flow was relative to your net income, would you have an answer?
Framework makes the game work.
I got this from a respected colleague in the wonderful world of entrepreneurial excellence, and I decided this was going to become an oft repeated and well-loved phrase in my writing.
Hats off and a huge thank you to John Schuette of Bulletproof Entrepreneur. You da man, brother.
You’re seeing it here; you’ll be seeing it again.
Now, when you hear the term framework does it call up the heavy construction of a high-rise office building in a downtown area?
My head calls up pictures of steel I-beams and big tough looking dudes in yellow hard hats.
It’s a good image to relate and project onto your business.
Really.
You have a solid foundation of the toughest concrete. Then you erect the framework itself.
Heavy lifting, and highly torqued bolts the size of a kid’s fist.
Let me translate that into my vision of the solidly built business.
You begin with some money, whether your own or the first payment you receive for your thing or your service.
If it’s your money, that’s a capital contribution, and considered equity. This is very typical – you may need some cash for a machine, or a car if you’re mobile, tools, advertising, any plethora of things that come up before your first sale.
In the case of a larger enterprise with multiple building and administrative costs as well as legal considerations we refer to these things as start-up and organizational costs.
Your Framework
Next step, you’re in business, and the logistics begin.
You need to draw a solid bold line down the middle of your expenses between business and personal.
This is as messy as a toddler’s room if it gets out of control, Lord knows I’ve seen it with my own eyes.
Even if you don’t feel ready to create a limited liability company or get an employee ID number (EIN) you should most definitely still open a new bank account and separate your “two lives.”
Here’s an idea, in fact, borrowed as it were, from another expert in the field of business growth.
Multiple bank accounts. One for your normal life, as it were. A joint account if you’re married or otherwise committed to a relationship for living expenses like rent and bills.
Then, a business checking account. Word of warning: if you don’t have an EIN number yet banks won’t allow you to open a business account, but you can certainly open a second checking account and nickname it whatever you want. They just won’t print the name of your business on your checks, but no matter what it’s critical that you have a separate account for your business.
Here’s why: when it comes tax time, if you have 350 business transactions mixed up in your personal account, you’re going to play absolute heck trying to figure it out, and it’s critical because you want to write off as much as possible from your net income.
Tax savings. In the beginning, if you’re a sole proprietor, you’d better save 25% of every dollar you make for taxes. You don’t have to, but this will bite you in the hindquarters during tax season if you don’t.
You’ll not only have one big bill due, but if it’s over $1,000 you get to pay an IRS underpayment penalty, too.
Invested savings. You should begin saving 10% of every dollar you make, period. There is a lot of grey area as to how to do this, but I wish like crazy I had ingrained this practice in my 20’s. This topic has been discussed thoroughly in other sources, so I won’t beat up on it here.
Next, tracking. I have another colorful metaphor in my toolbox for this.
How can you know what play to call if you don’t know the whole scoreboard?
If you are running your business by looking at your operating checking balance and making your decisions based only on that, you’re not organized.
You have no idea, really, how profitable you are.
And, since you really do need to pay an estimated tax amount four times a year once you start making some money, not knowing your income makes that pretty much impossible to do with any degree of accuracy.
This, folks, is why people need bookkeeping software.
It’s conveniently available online, and your bookkeeping department or accountant doesn’t even have to live anywhere near you.
Case in point: we have clients in the Midwest, the South, and even in Sin City, Nevada.
Making the Game Work
To continue the allegory, once your skyscraper is standing tall and proud, you need to maintain it.
Utilities.
Window washers. Painters, roofers, HVAC.
Your business needs care and feeding, too.
What does that look like for your business?
Is it enough to know what you own, what you owe, and your total investment?
What about the part the dastardly IRS cares about (mostly): net income?
They say if you’re not growing, you’re dying.
This is true in both life and business, and I say if you don’t know if you’re growing, you’re groping in the dark.
Where you are, what it means, key performance indicators all play a role in your current situation as well as, more importantly, in your mid-range forecasting.
All of this to say that as you level up in the game, you need bigger and better weapons and tools at your disposal.
Ordinary accounting, to clean up the compliance work such as tax and financial reporting, is becoming obsolete for the kind of forward-thinking businesses that see themselves as truly successful in the near-term and the long run.
Transformational accounting is the wave of the future.
Over 60% of small business owners surveyed in the not-too-distant past stated they’d love to see their accountants be more proactive.
The kind of accounting that focuses on all of the success metrics, including the most important one.
Work-life balance.
All that hard work means nothing if you don’t have enough time to enjoy the rewards.
Want to find out how this is possible for you?
Are you grossing over 7 figures a year, and still feel like your financials are a mystery?
Click on the link on my page, and let’s talk about it.
Framework makes the game work, and no winning team ever got to the Super Bowl without a winning coach.
What better time to take the bull by the horns then as the old year winds down to a close?
I look forward eagerly to talking to a few hungry entrepreneurs, soon.
Could this be you?