You know the feeling…you’ve got a big expense to pay and you fear you’ll have to dip into your business savings account for it. Or things may be tight on the homefront, and you need to take out a larger owner’s draw than usual.
Or maybe you want to rip your hair out because you needed to hire help, like yesterday, but you’re not sure if you can afford it.
These are the kinds of decisions that can make owning a business tough. But what if I told you that reviewing your finances isn’t as hard (or scary) as you may think?
It starts with getting the FULL picture of your finances — not just bouncing off of the numbers in your bank account or Dubsado dashboard. And today, I’m going to show you how to use a few methods to track expenses and profit to make real-time business decisions. So put your thinking cap on and grab your hot pink calculator. Let’s dig in!
To clarify, profit is what’s leftover from your revenue after you subtract expenses.
Getting to know your average profit per month can really help you get a more accurate picture of what’s coming into your business on a more regular basis. To find this number, you need to calculate…
Monthly Revenue – Monthly Expenses = Monthly Profit
That leftover number is what you actually have made each month.
If you don’t have all this data, you can also find your average profit per month by calculating…
Year to Date Profit / Number of Months of Data for Current Year = Average Profit Per Month
*Number of months of data for current year: For example, if you were calculating this in October, you would have nine full months of data. In May, you would have four… etc.
Whatever number you’re left with, you need to take out:
This FINAL number is your tell. Can you really afford something? If not, go back to the drawing board!
If you’re a Profit First girlie, then you know how AMAZING it is to have your bank accounts separated. You know that your savings, operations, checking, etc. all have a home and don’t mingle! This next step will be easy for you.
All you really need to do is take a peek into your account that you’ve dedicated for earmarking purchases like these (whether that’s savings, OpEx, etc.) to see if you have the money available.
(Pssssst…this is especially helpful if you want to purchase a course or a spot inside a mastermind program — a one-time payment!)
But if you don’t separate your accounts (no worries! You do you!) then you’ll have to do the following workaround to get a pulse read on your bank account balances.
Go back to your P&L and calculate your average monthly expense number. You can’t accurately do this step without knowing how much money you spend each month, on average.
Now, multiply that number by the number of months you want saved (one month, three months, etc. — it’s up to you!).
Average Monthly Expenses x Number of Months You Want Saved
The purpose of doing this is to see if you have extra funds beyond your monthly expenses that you can use for the expense you’re debating. Is what’s leftover enough to pay for that new expense you’re wanting? Do you have enough cash money right now to pay in full?
If not, you may want to reconsider that expense.
(Side note: you can also use this method to see if you have enough money SAVED UP to cover a few months of recurring expenses. For example: if you want to hire a VA at $400/month, then see if you have $1,200 saved up for three months worth of the new expense.)
Finally, you can take a look at your projections to see if you’ve got the cash flow for a new expense, whether monthly or recurring.
First, make a list of projected INCOMING payments from clients, and any upcoming expenses you may have — both recurring payments AND one-off expenses, like for an upcoming launch, etc.
What are you projecting to make? How concrete are those projections (ex. I may book a few more clients next month vs. I HAVE booked these clients, the money is just not in my bank account yet).
I will say this is the hardest method to use because it’s not “real” data, at least not yet. You can crunch all the numbers you want, but you can’t ever accurately predict the future. You never know what sorts of things may pop up.
Don’t let that scare you though! This is exactly why we plan for these emergencies AND do things like assess our true profit before making any big decisions.
Need a little help tracking and crunching these numbers? I’ve got just the thing for you!
The Online Business Budget Spreadsheet can help you keep tabs on all of that important data by tracking your income and spending each month.
Geared towards increasing your profit and financial confidence and anything BUT boring (umm hi yes, it’s MAGENTA pink 🙌), this spreadsheet can help you move forward with clarity when making those big decisions in your business.
If the idea of a budget feels dry and dusty, but you know you want to track your numbers, then grab the spreadsheet here!