Today’s episode is a bit of a detour from the usual.
As we start the year 2021, I want to provide you with some help, including working from home and business budgeting tips. My very own bookkeeper, Iyanna from Lovely Financials, is here with me this week to talk about how to budget in your business after an unusual year (and NO YEAR has been quite as unusual as the one we just finished).
Iyanna and I have been working together since 2018. She started doing my bookkeeping during a period of transition in my business – I was way in over my head and desperately needed help. A business friend introduced me to Iyanna. Hiring her has been one of the absolute best things I’ve ever done for my business.
Today, we’ll be talking about setting goals for 2021, what is most important when it comes to your business budget, and how to allocate your business dollars. We’ll cover different types of businesses and how your business type affects your budget.
Iyanna was a young mother and also a foster mom to special needs teenagers. She wanted to do something for herself and so she decided to start a blog. She was so inspired by what she uncovered in the online business world. She saw so many examples of women crushing their business goals and growing their family’s finances.
Unfortunately, she also observed a common theme across these women — they were afraid to talk about their numbers.
Iyanna invested in a course to help further her knowledge base in accounting (a subject she explored in college). She had been on the health care management track in school since she aspired to be a CFO of a hospital. Along the way, she ended up falling in love with her accounting courses.
From Bookkeeping to Business Budgeting Tips
The course helped her to launch her bookkeeping business. She decided to niche down to serve online businesses since she wanted to help those women entrepreneurs to be empowered when it comes to their business numbers.
Soon, her services went beyond bookkeeping. Iyanna started offering advice on how her clients could improve their financials. She also helped them to develop a budget for their businesses.
As Iyanna’s business has evolved, she currently offers CFO-level support for online businesses. She takes a holistic approach to help her clients grow their business and understand their financials.
Be 100% Approachable
Bookkeeping professionals are viewed by many people as condescending – they base their interactions with clients on the assumption that clients can’t understand bookkeeping methods. This is not the experience that Iyanna wants for her clients. She is an advocate for her clients and wants them to be empowered to understand their numbers so that they can make informed decisions for their business.
Iyanna’s mission is to make sure her business is 100% approachable.
No matter whether someone has been blogging for years or is just starting out, making a six-figure income, or hasn’t made $100, Iyanna wants to educate her clients and help them to grow their business the way they see fit.
At the end of the day, our financials are just a picture of what actually has transpired or what can come to fruition. — Iyanna
Our financials are simply data and information. But it can be hard to view them as such, especially when many of us have negative/limiting beliefs when it comes to money.
Iyanna believes that we need to take the feelings out of the equation when it comes to looking at our numbers in the beginning. We first need to understand the data. We can inject those feelings back in at a later point. How has your mindset shifted as you reach various milestones in your business?
The great thing about our industry is that our businesses were already online before all of the craziness of 2020. While mild pivots might have been necessary in order to really serve our audience well, we were already ahead of the game relative to the brick-and-mortar businesses.
Business Budgeting Tips for the Year AFTER an Atypical Year
Set Aside Cash Reserve
Going into 2021, it’s a good idea to proceed with caution. At the end of every year, you need to look back and see what the growth was like from one year to the next. Look at 2019 and 2020 and make an assumption about what your business will look like if nothing were to change in 2021.
Engaging in this exercise will enable you to plan in a more holistic way. Go beyond simply deciding what you want to make in sales. Determine what type of operations are needed in order to generate sales, have cash flow support, etc.
Understanding the relationship between your sales and cash flow is so important because you never know what can happen in your business. Focus on creating a cash-reserve buffer. It will help you feel more confident and provide peace of mind.
Iyanna recommends looking at your previous financials to determine your monthly expenses, then put aside 3 months’ worth of expenses into savings. Having that cash reserve will set you up for success when the unexpected happens.
Allocate Marketing Dollars Based on Your Business Model
You may be wondering what percentage of your budget you should be putting towards marketing (Facebook ads, Pinterest ads, etc.) in order to grow your business.
This really does depend on your business model. If you are a service-based business or an agency model, you might allocate a smaller percentage of your budget on marketing relative to someone whose business is based on selling courses or selling physical products online. Iyanna advises that, on average, 15% of your revenue goal (but no more than 30% of your budget) should be earmarked for marketing.
She recommends keeping track of sub-categories of marketing expenses. If there is just one line item for “Marketing” in your budget, it won’t provide much useful information. Breaking your marketing budget down into Facebook ads, Pinterest ads, and other categories will give you a much clearer picture of what you are spending your money on.
Be Cautious When Comparing Your Business Financials to Other Businesses
There might be years when you are heavily investing in the growth of your business. You can expect your profit margin to go down during those years. You always need to be aware of the story behind the numbers.
Don’t compare your business to a business that is based on a completely different business model (avoid apples to oranges comparisons). If you compare your agency model business to a coaching business, you will feel like you are not measuring up.
The truth is that you run your businesses differently, so your revenue will look different. Just because something is a trend for someone else’s business does not mean that you have to follow it.
Subtract your direct costs from your revenue. The direct cost of an agency would be the team members who are providing the service. This allows you to calculate your gross profit margin.
The direct cost of a coaching business will look totally different and be much less. This doesn’t mean that a coaching business is better. It is just a different type of business and different types of revenue.
After you go over your direct costs, you need to calculate your operating costs. These include taxes, your wages, and payroll.
Determine if It’s Time to Hire a Bookkeeper
Iyanna has been working with many different types of businesses and has learned so much about the type of support they need. If you’re making close to six figures in your business, Iyanna recommends finding an affordable bookkeeping solution like Bench.co.
Once you have reached the $250,000 a year milestone, you need to get more hands-on with your numbers. A bookkeeper will help you gain a clear understanding of your numbers and what they mean.
Iyanna has piloted a service that provides a fractional CFO service to entrepreneurs who aren’t ready to hire a full-time CFO. She reviews financials once a month with these clients.
Every quarter Iyanna and her team help clients develop a strategy for the upcoming quarter. At the end of the year, they help clients create a capital forecast for the following year.
Once you reach $500k a year and beyond, you will need a full-fledged CFO on your team to provide even more hands-on support when it comes to your financials.
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More Business Budgeting Help: The Major Margins Bundle
Iyanna has an awesome product that consists of a bundle of various courses she has created over the years. The Major Margins Bundle helps beginner entrepreneurs understand what their numbers mean and how to create goals for the future.
Understanding your personal finances and what you need to make will help you set specific goals and execute those goals. Pricing for profit is an absolute necessity and is something Iyanna prioritizes in her courses.
This business bundle is full of business budgeting tips. It will help you to understand your own financial reports and give you a leg up when you do hire your own bookkeeper.
I can’t recommend her enough!
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