Getting Started on the Financial Journey

Let’s say you’re running a business and have a pretty good handle on:

• Managing the day-to-day
• Dealing with the team
• Talking to customers
• Finding suppliers

But when you open up the bank account or QuickBooks? Stopped dead in your tracks. I was there too at one point. Below, I’ll share a 7-point list of where you should start on your financial journey (whether 1st inning or 8th inning).

First, a quick story… I have a masters in accounting, I’m a licensed CPA, a CFA charterholder and my professional background includes public accounting and investing in businesses.

But when I got into the driver’s seat of my first business and opened that QuickBooks account, I wasn’t sure what to do with it. As the months went by, my bookkeeping got better, but then I wasn’t sure the best way to use the financials to help the business (and my partner).

​Profit Mastery was offered through my local SBDC in 2020 and gave us a nice framework of: 1) what to look at; and 2) when to look at it. (As an aside, I loved the program so much, we decided to buy the company in 2023.) Since then, our financial system is now consistent and reliably producing “actions to take.”

Fast forward to today… I’m learning a ton by working with our monthly service clients and PM Pro members. The most valuable thing I’m learning? Finding the initial 3-5 problem area(s) to focus on for each business.

Based on those learnings, here’s my list of common starting points when unpacking your financials for the 1st or 50th time:

Financial management action plan:

1. Good accounting — Almost always the best starting point. What are good books? Consistent categorization, everything reconciled, tight groups and sub-groups, etc. If you already have good books, then skip to #2.
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2. Better financial reporting — Good books ≠ good financial reporting. If you open up your P&L right now, is it a mess? Or is it nicely organized with proper groupings for your situation?
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3. Review trends & ratios — You can’t make informed business decisions without knowing the trends and ratios. Raw numbers are very hard to interpret, convert them into meaningful metrics and add some visualization. Find the leaks before you try to plug them.
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4. Look at the cost structure — It’s easier to plan the future when you know the makeup of your expenses (i.e. I’m spending X every month on these items and it costs me Y every time I make a sale). This is where cost-cutting typically comes into the picture.
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5. Manage cash flow — Everyone wants to talk cash flow, but it usually comes later in the process. Cash flow has 2 phases: short-range and long-range. Short-range cash planning is your 13-week cash flow. Long-range is your monthly or multi-year budget.
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6. Forecasting & planning — Notice how far down this is on the list? It makes zero sense to build a monthly or yearly plan until you have good financials, know your metrics, etc. Don’t force this up the curve.
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7. Capital management — At the very end of our list is capital planning (i.e. proper debt and equity funding sources). Only until you know where you are and where you’re headed should you sort out where to get the money and the best way to structure it. This minimizes the chance you’ll under (or over) estimate your needs.

A few additional notes:

• Good accounting and reporting act as the foundation for everything else we do. Interestingly, your accounting and reporting improve as you build out forecasting and capital planning, so it’s circular. (This should emphasize the importance of good bookkeeping if you want to make money.)
• This isn’t an exhaustive list since it’s difficult (impossible?) to give broad-based financial advice, so the order can change based on your business situation. Example: if you’re cash-strapped and in distress, then cash flow likely jumps to #1 on the list. If you already have good accounting and reporting, then maybe you’re ready to jump into forecasting & planning.
• Lots of little details fit into each of these buckets. For example, I have a slightly different “financial review” process for monthly, quarterly, and annual financials; but those are tucked into my “review trends & ratios” step.