Welfont Joe Johnson - Being Smart with Finances When Starting a Company

Welfont Joe Johnson, Ph.D.

Entrepreneur. Investor. Startup Expert.

One for the record books, The Welfont Companies, based out of Tampa, Florida, just won first place in the 2018 Inc 5000 list of fastest growing real estate “brokerages” in the country. Welfont Joe Johnson is the CEO of the company.

 Whether you’re bootstrapping, have accepted a loan, or are being financed by investors, money – and how you use it – matters. Every business must have a budget, and while that concept may, for some, imply a degree of penny-pinching, others correctly view it as a path toward rationalizing their spending.

Too many businesses fail for a lack of funds. Intelligent financial management is one of the most critical components of business success. While it won’t compensate for a bad idea or poor implementation, it can help to indicate when a course change may be necessary or, conversely, when you’ve begun to find success. Financial management is also invaluable for both meeting obligations to creditors and realizing your own business goals.

Here’s what you need to know about financial management as an entrepreneur:

Budgets Are a Must

While I’ve already mentioned budgets, I’m going to continue on that theme because budgets are such an essential tool for keeping expenses in line. Combined with accurate financial reporting, a budget can help you to better determine exactly where your money is going vs. where it should be going.

We tend to regard budgets negatively, as though they’re somehow limiting our ability to spend . We’d be far better served, instead, by regarding budgets as a vital planning tool. A well-made budget will reflect both income and expenses and help to provide a blueprint for future financial well-being. Effective budgeting can help you to conquer ambitious goals and to ensure that you’re prepared to meet large expenses. It can also help companies to manage periods of low cash flow.

A budget helps to paint a picture of just how you intend to use available funds and so reflects the your business’ goals. For example, if you’re working to ramp up product awareness, your marketing budget may expand for a few months. Having an awareness of this plan will enable you to cut back in other areas or otherwise plan to accommodate that departmental funding increase.

Keep Good Books From the Start

Despite accounting and bookkeeping being commonsense aspects of owning a business, for many small business owners, they can be an afterthought. Daily operations are the primary concern and receipts are simply shoved into a folder for later attention.

While this may suffice over a short period of time, continuing in this manner is really doing yourself a considerable disservice. Keeping an accurate accounting of expenses and income is essential in order to ensure that your overall efforts are not in vain. Understanding the cost of providing your service is absolutely necessary in order to set effective pricing. The only means of generating this information is to maintain a record of everything – every penny spent on business-related items and every penny earned.

Review Your Numbers

Depending on your specific enterprise, the frequency with which you’ll need to review your numbers will differ. Some businesses examine their numbers throughout each day, while others may benefit from doing so on a weekly basis.

A review of various metrics may serve to provide you with a sense of what’s happening in your business. Sure, you probably have an anecdotal notion of day-to-day operational details, but having data that explicitly indicates the sources of income and disposition of expenses will invariably help you to make more informed decisions. While the metrics you choose to track will vary based on your particular business, you may wish to consider examining these: average sale per customer/client, average daily sale, and daily net profit. You should also identify which of your products or services are performing well and which aren’t. Is a particular item not selling at all? Having a working knowledge of these facts can inspire a decision to run a marketing campaign, move an item to an area of greater visibility, alter the sales team’s focus, or perhaps even cut your losses entirely.

Set Realistic Goals

Throughout the life of your business, you must consistently set realistic goals and create pathways for achieving them. Many of those goals will have financial components to be budgeted and measured. For example, in order to ramp up production of your gadget, the production budget will require an increase and marketing might also merit an allocation of additional funds as product availability scales.

Understand Your Cash Flow

Every dollar matters to a startup. Achieving a complete understanding of cash flow – of how much is being spent and of how long it takes to see a return – is essential in order to remain afloat as a viable concern.

Time is Money; Know When to Delegate

Your time is valuable. In order to make the most of it, you must carefully consider which specific activities are worth your time and which should be delegated to an employee or freelancer. For example, while your business remains small, it may make sense for you to handle the bookkeeping responsibilities. Once you’ve grown a bit larger, however, having someone else handle those chores will likely represent a net savings.