Fundamentals of Business
Did you know Frank Lloyd Wright went bankrupt?
Running a firm is hard—you started because you love design and creating, but at the end of the day it is also a business.
This is a story I’ve heard time and time again from architects and engineers. They’re experts in their craft, and have no problem running that aspect of their firm, but the business side of running a business is where they struggle.
If you’ve already started your own business, or you’re considering starting one, you need to learn the fundamentals of business and how to manage your finances so that you can avoid the same fate.
Here are some of the fundamentals you should make sure you have in place:
Accurate Bookkeeping
Bookkeeping is the foundation of healthy finances. This is essentially just keeping track of everything that happens involving money for your business. Without this, tracking cash flow, paying taxes, budgeting, etc will be impossible.
A bookkeeping system should track: income, expenses, assets, liabilities, and equity. This includes keeping records of sales, purchases, receipts, invoices, payroll, and any other financial transactions.
Financial Statements
In order to stay on track with your goals and budget, you need to regularly check-in on your business’s current financial situation.
Prepare and regularly review financial statements to assess the financial health of your business. The primary financial statements include the balance sheet, income statement (or profit and loss statement), and cash flow statement.
Budgeting and Forecasting
Just like personal finances, business finances need to have a budget. This is a bit more complex than personal budgets because the income and expenses for the business is generally more variable.
Develop a budget and financial forecast to plan and monitor your business's activities. A forecast helps allocate resources, set financial goals, and track performance against targets. Regularly review and adjust your budget based on actual results and changing circumstances.
Check out my additional resources for managing variable income and expenses for how to get started.
Cash Flow Management
Effectively manage your cash flow to ensure you have sufficient funds to cover your business expenses and obligations. Monitor cash inflows and outflows, maintain appropriate working capital, and implement strategies to improve cash flow, such as optimizing receivables and managing payables.
Tax Compliance
Understand and comply with tax obligations applicable to your business. This includes income tax, payroll tax, sales tax, and any other relevant taxes or reporting requirements. Maintain accurate records, meet filing deadlines, and seek guidance from tax professionals to ensure proper compliance and minimize tax liabilities. Don't forget about making regular tax payments to minimize the surprise when tax season rolls around.
Financial Analysis
Regularly analyze your financial performance to identify strengths, weaknesses, and opportunities for improvement. Calculate key financial ratios, such as profitability ratios, liquidity ratios, and efficiency ratios, to assess your business's financial health and compare performance against industry benchmarks.
These are really non-negotiable.
It doesn't matter how much you love designing if you can't keep the lights on. At the end of the day you need to have the processes and systems in place to help you make this side of your business run smooth so you 𝘤𝘢𝘯 focus on what you truly enjoy.
