Transcript:

Welcome back to The Profit Plot, a podcast where we help small business owners unlock the story behind their profitable business by unpacking one complex financial topic at a time. I am your host, Jeremy Millar.  

Whether you're just starting your business or have been running it for a while, I think you'll find immense value in learning about our topic today: financial coaching and how it can help you grow and sustain your business.

As always, it's essential to start by first defining our terms so we can all understand what we're discussing! So, what is financial coaching, and why should you care?

Financial coaching is a collaborative, educational approach to helping a small business owner better understand their financial position, set goals, and create a plan to achieve them. It's like having a personal trainer for your business finances. But instead of working on your physical fitness, you're working on your business's financial fitness.

Financial coaches come in many forms; some are business coaches with a financial background, and others are advisors whose goal is to help you implement the best possible practices for growing your business.

While I'm a bit biased on this topic, I personally think that the best financial coaches are actually accountants! Accountants are uniquely qualified to act as a "financial coach" for your business because they can help build a truly robust and effective system for translating and communicating the financial data that comes from your small business and interpreting it into actionable insights as you grow.

Now, let's dive into the benefits of financial coaching for small business owners.

First of all, one of the most significant benefits of financial coaching is improving your financial literacy.

Small business owners come from diverse backgrounds. Very rarely do small business owners have a distinctly strong accounting, bookkeeping, or financial management foundation, and that's okay. As a business owner, your goal when first starting your business is to grow and generate sales. You need to be excellent at making money, not doing accounting! Over time, you're able to transition into managing the diverse challenges of scaling your business, which includes understanding the financial side of your business with enough depth to make educated decisions.

A financial coach can help you develop the skills and knowledge to make informed decisions about your business's finances. This includes understanding financial statements, cash flow management, and budgeting.

Truly the foundation of every business is its finances. Being able to understand the story behind those finances is something that takes time and expertise - it's a learned skill!

Many small business owners simply don't make the effort to look at their finances. I've heard horror stories of business owners doing a million dollars a year in revenue and simply checking their bank accounts every few weeks to make sure they still have cash. This is such a treacherous practice to fall into because ignoring your finances can have devastating consequences. Businesses fail and people go bankrupt, all because they're not properly tracking their cash flow and understanding what's actually happening from a financial perspective behind the scenes.

It's incredibly important to make an effort to learn more about financial literacy as a business owner. Over time, investing in that education can open up a lot of opportunities.

One such opportunity that I've seen come along when establishing a baseline understanding of your finances is for goal development and planning. Working with a financial coach can help you set realistic financial goals for your business and create a roadmap to achieve them.

This process takes time and involves identifying your short-term and long-term objectives, prioritizing them, and establishing a plan of action. A coach can help you break down your goals into manageable steps and track your progress, ensuring you stay on course.

When it comes to goal development, it's important to understand that many goals within your business have a financial impact. For example, increasing your headcount through hiring or pushing higher sales targets to your sales team both have an immediate impact that can be seen on a company's financial statements.

So, in planning for the future and creating a goal for where you want to be, it's important to look at the history of these targets helps to provide context about what's possible in the future. Your finances can help you evaluate if your goals are actually feasible or if they're unrealistic.

If your company plans to hire, you'll need to understand the impact a new position may have on your monthly expenses. If you're trying to achieve record sales numbers, you'll need to understand and analyze the makeup of your current sales figures and think of how you will increase them. Is it a matter of expanding your profit margin by negotiating with vendors, improving your team's efficiency, or developing new marketing collateral to bring in a particular highly-profitable type of customer?

When you're able to dig deeper into these items with a financial coach, you can unearth the story behind your business's financial data and leverage it to make better decisions about the future of your business and how you're going to reach the goals that you've created for yourself.

Unlocking and utilizing this information is key for businesses that are looking to grow. A greater understanding of what's happening in your business allows you to steward your resources better!

Speaking of resources, let's talk about cash flow. Cash flow is the lifeblood of any business. Poor cash flow management can lead to the downfall of even the most promising ventures.

This is where a financially focused third party can provide much value. By working with someone to analyze your cash flow, identify potential problems, and implement strategies to improve it, you'll ultimately be saved a lot of headaches. Your business needs cash flow to ensure that it remains financially healthy and can seize new opportunities as they arise.

Identifying your cash flow needs requires a deeper understanding of your overall profit and loss. Specifically, how much cash is needed to operate the business every month, and how often does revenue shrink or your expenses grow significantly?

This is often the first area of improvement that we work on with most businesses. Because the primary engine with which our team works is accounting, we can deeply understand the cash position that a company is in at any point in time through the Balance Sheet. When working with clients who need to improve their cash position, we evaluate the business's current liabilities and monthly total expenses. This allows us, as financial coaches, to establish a baseline of what the business needs to operate and then provide suggestions for improvement.

Combining the sound financial foundation that comes from excellent accounting with an analytical eye along with a business owner's own intuition creates an unbeatable combination. It allows you to draw conclusions about your business and pair your deep understanding of the market to blaze your own path forward.

A good understanding of cash flow is essential, but what makes up much of a business's cash flow is both the money that it brings in and the money that goes out. This brings up the question of cost control and efficiency: one of the biggest benefits of working with a financial coach is identifying areas where your business may be overspending or not spending productively.

We often see unproductive spending in labor-hour-based businesses. If not properly tracked, the cost of labor can become disproportionate to the amount being billed to a customer! This is often an underlying sign of an unproductive team or process that needs to be improved.

Unproductive spending can also be in bloated software costs, ineffective marketing that doesn't turn into sales, and other unnecessary costs. By analyzing your expenses and finding ways to reduce those costs, you can increase your business's profitability and free up resources for growth and expansion. When your business is spending productively, you can generate a more significant profit!

Productive spending is incredibly important for every business, but especially those businesses that have chosen to take on debt. By leveraging cash to grow your business, it's vital to ensure that every cost center is being used effectively.

Every business faces risks, but understanding and managing those risks is crucial to your success.

Risk tolerance is truly unique to every business owner. If you're highly leveraged and deploying a lot of debt in order to expand your business, you're facing a completely different level of risk than a business owner with absolutely no debt!

A financial coach can help you identify financial risks and develop strategies to mitigate them or at the very least, analyze whether or not your current risk is useful or not. This proactive approach can help protect your business and ensure its long-term viability.

It's this facet of working with anyone in financial services that is so important! A financial advisor, bookkeeper, accountant, or financial coach can help provide decision-making support. Having a proactive 3rd party with an outsider's perspective helps to mitigate against any emotional decisions that come with being directly involved in your business.  

As a small business owner, you're constantly making decisions that affect your company's financial health and future. A service provider that takes the approach of a coach can provide objective advice and insights, helping you make better-informed decisions that lead to better outcomes. At the very least, they'll provide unbiased insight into your business.

In my experience, having a team that blends bookkeeping and accounting with a coaching approach can provide unparalleled insights that are invaluable when you as a business owner are faced with tough choices or when you need a fresh perspective on your business's direction.

Not only should your financial team be able to provide a fresh perspective to your business, but they should also keep you accountable. Like a personal trainer, a coach can provide the motivation and support to push through challenges and stay committed to your plan. This accountability can differentiate success and failure for many small business owners.

Another benefit of working with a blended financial team is the time savings. Your time is precious. By working with someone that can provide unique financial insights, do the complex work of bookkeeping and accounting, as well as consult on implementing new systems and processes to make your financial operations more efficient, you'll save a massive amount of time while finding more clarity in your business. Instead of spending countless hours figuring out your finances alone, you can focus on what you do best – running and growing your business.

Ultimately, one of the primary goals of financial coaching is to help your business become more profitable. By addressing financial challenges, creating a clear plan, and implementing sound strategies, you can increase your bottom line and ensure the long-term success of your business as it develops.

Working with the right team to achieve those goals of profitability helps bring about peace of mind.

This peace of mind lets you focus on other business aspects, leading to a more balanced and enjoyable entrepreneurial experience.

Entrepreneurship in itself is a somewhat lonely experience. It's challenging to run a successful business completely on your own. Having a team that you can rely on to help you grow your business is essential.

I believe that by investing in financial coaching, you're investing in your business's future. And, as the saying goes, knowledge is power. The more you understand your financial situation, the better equipped you'll be to make smart decisions that help your business grow and prosper.

If you're interested in learning more about how a team of bookkeepers and accountants can benefit your business through financial coaching, I'd encourage you to check out the team at Amarlo online at amarlo.co.

That's it for today's episode of The Profit Plot. We hope you found this discussion on financial coaching helpful and inspiring. Don't forget to subscribe to our podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts from. If you found today's episode particularly insightful, please share it with a small business owner in your life so that other entrepreneurs can benefit from this valuable information. The more knowledge we can share with one another, the better off we'll all be.

Join us again soon as we venture to unlock the financial story behind your profitable business. Looking forward to having you here with us next time, on the profit plot.