5 Things Every CEO Needs to Know About Money

Written by theFiscalFemme Published in

Being an entrepreneur has some incredible perks. We get to enjoy freedom and control over our businesses and lives and spend our days work on projects we are extremely passionate about. This tremendous opportunity also comes with it’s challenges. We have to wear many hats. We’re expected to understand the basics of law, taxes, marketing, operations, and oh yes… finance.

While we may hope that the money stuff won’t be important if we make it big or that it all will work itself out, having a strong financial foundation can make or break a businesses' success and enable us to do the things we need to do to grow. The good news is, I promise it can be a lot more straight forward than you might think. Here are 5 things every CEO needs to know about money along with a simple action step you can take to set yourself up for financial success.

Things come up unexpectedly.

While many of us prefer to plan for everything, we know that things can come up unexpectedly. Whether something breaks that needs fixing urgently, income doesn’t pick up as quickly as planned or a launch falls flat, it’s so important to have a rainy day fund set up to protect you and your business in case of the unexpected. Have a few months of expenses in an easy to access savings account that’s available if and when you need it. To determine how much should be in your rainy day fund, think through a couple of “emergency” situations. How many months of expenses would make you feel comfortable in those situations? Multiply that number by your total monthly expenses and you have your target rainy day fund number.

Action item: Calculate your ideal rainy day fund size and set up an automatic transfer to your savings account each week or month until you hit that number. While you might not have that amount of cash available right now, you can start working to build it up slowly and surely.

Other things will always come up.

While there are things we can’t plan for, there are others that we can bet on with complete certainty. Taxes are a great example. Many companies scramble to pay their tax bill each quarter or year even though they know it’s coming. Create a bucket in your savings account for taxes and transfer funds over each week, month or even each time income comes into your business account. Talk to your accountant to get an idea of how much you should transfer over. This can be a percentage of income or a flat dollar amount each quarter. This way, when quarterlies are due or it’s time to file your annual taxes, money is available and waiting for you. This can greatly reduce your stress and make your tax bill feel a whole lot less painful!

Action item: Create a tax fund and transfer a certain percentage of your income to the tax fund each month. This money might seem like yours but it’s owed to the IRS. In the same way, you can put money aside each week or month for larger annual expenses so you don’t have to incur those expenses in that same month. Planning is everything!

You can have a profitable business right now.

Your company doesn’t have to achieve high revenue goals in order to become profitable. You can decide to make your business profitable right here, right now. In the same savings account as your tax fund, set up a profit fund. Decide on an amount and transfer over a certain percentage of income to your profit account each month. We work really hard as entrepreneurs. We need to prioritize paying ourselves a profit as much as we prioritize our bills. No matter what happens, you figure out how to pay your bills. Why not prioritize paying ourselves with the same urgency?

Action item: Decide how much profit you’d like to receive each month and start treating that like an expense. If you have no idea how to make this work, start small. Get into the practice of paying yourself first even if it’s as little as 1% of your income. You can work your way up from there. Don’t you deserve it?

Business is business.

As you’re starting your business it can be really easy to combine your business and personal expenses. They can really feel one in the same! While it might not seem like a big deal just yet, set your business up with best financial practices now so that you are primed for growth! Not only that, it will make your life much easier for tax season and you will be able to see how your business is doing each month.

Action item: Set up separate accounts for your business and personal finances. Use those accounts for their respective expenses and income. If you forget, don’t beat yourself up. Building these habits takes time. Be kind to yourself throughout the process!

Protecting yourself provides room for creativity.

Many believe that personal and business financial plans are stifling and restricting. I believe they are actually the complete opposite. A plan and confidence in your finances provides space for much more creativity and freedom. If you are busy worried about how you are going to pay your next bill, how will come up with new ideas and innovate? If for no other reason, set you and your business up for more success by getting your finances in order.

Action item: Create a financial plan for your business. Look at the next twelve months, or more, as far as expenses and income. What do you expect to earn each month and what expenses do you plan to continue to incur as well as add as you grow? Have a monthly or bi-monthly money meeting for your business and check in with these projections. How are they going? Are they realistic? What do you need to adjust?

Ashley Feinstein Gerstley is a money coach demystifying the world of money and personal finance. Get her exclusive guide “30 Days to Financial Bliss” – free for Chic CEO readers.

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