Feb. 11 2020

Moving toward financial freedom


Have you ever been in a low place financially? Maybe it was significant debt, creditors harassing you, or perhaps you even came close (or worse) to losing the house or car. Whatever the circumstance might have been or currently is now, as a small business owner you know finances (or lack thereof) can be a difficult obstacle. The knowledge and personal experience gained over the years as a small business owner can teach you more about finance than obtaining an MBA.

One of the most important things you can do as a business owner is to create a business spending plan each month. You may know this as a budget. A budget, for some, can feel scary or restrictive but a “spending plan” connotes freedom. 

Why do a spending plan?
It’s interesting that fitness professionals often have their workout and nutrition plans fully detailed and dialed-in to the finest detail. However, many are “fat” with their finances, and not in a good way.

Whether your business is succeeding right now or if you’re struggling to pay the bills, a spending plan will help you see beyond the immediate and plan for the future. Some of the benefits of committing to this practice of a monthly spending plan include:
  • Peace of mind knowing that you aren’t just guessing and hoping for the best
  • The ability to maximize your business’ profit rather than wonder where it went
  • Protection during the anticipated dips in business
  • The ability to persevere through unexpected events
  • A plan for long-term growth and success
  • Built-in efficiency and control within your business
5 steps to create a spending plan
Assuming you’re sold on the benefits of creating and being accountable to a spending plan, here are five steps to making it happen:

1. Analyze your history
Assuming you’re not a start-up business, look at your P&L statement (i.e. profit and loss, or income statement) from the previous month, quarter, and year. If you’re newer in business, you’ll have to make your best estimates based on the information you have. 

2. Project total revenue for the upcoming month
Whether it’s taking the average from your P&L statement, making an estimate, or a combination of both, determine what your estimated total revenue will be for the coming month including all revenue streams.

4. Determine fixed and variable expenses
Fixed expenses don’t change and include things like rent and monthly fees you pay for certain services. Variable expenses change with volume and might include marketing and payroll.

4. Determine profit (or loss)
When you take your revenue and subtract your expenses, you’re left with either your profit or loss. Depending on the outcome, you may want to make adjustments to your expenses as you see fit. 

5. Make it a habit
Dedicating time every week to work on the financials and accounting of the business can really make an impact on the potential growth of your business. It is also suggested that you look at your actual numbers as compared to your projected revenue and expenses. Over time, this will help you better estimate your monthly spending plan.

Doing a business spending plan is a little different than doing a personal one for most people. Most people have a better idea what their personal income will be rather than their business revenue. For example, people who are paid a salary know exactly what they’ll be taking home and can allocate every dollar. For business, it’s best to plan based on the revenue of your lower months. This way, any extra is gravy. 

Here are three additional factors you’ll want to consider:

Invest in a good CPA – A good accountant can help you manage your finances and assist in short- and long-term decision-making.

Save for one-time expenses – You are always going to need things like new computers and equipment. Why not save for these throughout the year so it’s not such a stress when the time comes?

Create an “unexpected event” fund – Life is unpredictable and when you run a small business, it's good to have a little extra saved in case an unexpected issue arises that could possibly alter your initial plans.

Start working towards at least one month (ideally three months) in a separate savings account to prepare for a rainy day. If you’re in business long enough, it will rain! Keep in mind that this practice takes time. Even if you've been at it for years, the numbers can still get confusing at times. Things may feel a certain way, but the numbers don’t lie. 

Doing a business spending plan doesn’t need to be that complicated. Of course, you can always add to it once you get good at the basics. Once you master the basic plan, you can get fancier and do things like an 18-month rolling budget. However, for now, start off monthly. This will put you ahead of the majority of your competition. 

You probably didn’t get into business to do budgets and look at financial reports. However, being intentional about your finances will help you enjoy the results of a successful business and give you a sense of personal and professional security.

Billy Hofacker has been a personal trainer for over 20 years and is owner and CEO of Total Body Boot Camp and Performance Center with two successful locations in the hyper-competitive market of Long Island, NY. He is the creator of the Financial Freedom for Health and Fitness Professionals course.