Budgeting – New Economy CPA

Unlock Your Business’s Financial Potential with the New Economy Financial Health Checkup

March 14, 2025/in Budgeting, Entrepreneur, EOS/by Mallory Raber

Financial stability is crucial for business growth.

However, gauging your financial health and making informed decisions can be a challenge.

That’s why we’re here.

We help entrepreneurs gain control of their finances to make smart decisions.

And one of the ways we do that is with our new Financial Health Checkup.

If you’re a business owner looking to scale, optimize cash flow, and ensure long-term sustainability, it’s the perfect tool for you.

This easy-to-use quiz was designed specifically for entrepreneurs to evaluate their business’s financial standing and gain actionable insights to drive success.

Let’s explore what the quiz is, who can benefit from it, and how it can transform your business.

What is the New Economy Financial Health Checkup?

The New Economy Financial Health Checkup is a strategic quiz designed to evaluate key financial areas needed for business success. This includes:

Metrics
Budgets and forecasts
Reporting processes
Financial statements
Financial strategies

It provides a clear picture of your business’s financial well-being and highlights areas for improvement.

At the end of the quiz, you receive a personalized financial health score with recommendations to strengthen your business’s financial foundation.

Who Needs This Quiz?

This quiz is specifically designed for entrepreneurs and business owners who are committed to growth and financial stability.

Here’s who will benefit the most:

1. Startup Founders and Small Business Owners

If you’re in the early stages of your business or looking to improve financial management, this quiz can help identify areas that need attention.

2. Entrepreneurs Seeking to Scale

Growth requires strong financial planning.

This quiz provides insights into whether your business is financially prepared to expand.

3. Business Owners Managing Cash Flow Challenges

Struggling with irregular cash flow?

This quiz helps pinpoint potential inefficiencies and suggests ways to improve financial stability.

4. Owners Preparing for Investments or Funding

Understanding your financial health is crucial if you’re considering:

Applying for a business loan
Bringing on investors
Expanding operations

5. Leaders Focused on Long-Term Success

Sustainable growth depends on smart financial strategies.

This quiz offers insights to help you plan for longevity and profitability.

How Can the Quiz Help Your Business?

Taking the New Economy Financial Health Quiz is a roadmap to business growth.

Here’s how it can make a difference:

1. Clarity on Your Business’s Financial Health

Many business owners lack a clear understanding of their financial position.

This quiz provides a detailed assessment to help you make better financial decisions.

2. Personalized Recommendations for Growth

Based on your results, you’ll receive tailored insights and actionable steps to strengthen your business’s finances and enhance profitability.

3. Smarter Financial Decision-Making

With a clearer picture of your financial standing, you can make informed decisions about investments, hiring, expansion, and operational improvements.

4. Motivation to Optimize Finances

Seeing an objective evaluation of your business’s financial health can be the motivation you need to:

Improve budgeting
Reduce debt
Enhance revenue streams

5. A Starting Point for Professional Financial Guidance

If the quiz reveals challenges, it may be time to seek expert advice.

New Economy provides professional financial support to help entrepreneurs create effective strategies for long-term success.

Take the First Step Toward Financial Growth

Understanding your business’s financial health is the key to sustainable success.

The New Economy Financial Health Checkup is a simple yet powerful tool that provides the insights and recommendations you need to help you scale and thrive.

Ready to gain financial clarity?

Take the quiz today and start focusing your efforts for long-term success.

5 Ways to Use Your Data to Uncover Business Issues

November 26, 2024/in Budgeting, Entrepreneur, EOS/by Mallory Raber

In today’s data-driven business landscape, the ability to leverage your financial information effectively can be the difference between stagnation and growth.

At New Economy, we believe in the power of data to uncover critical business issues and drive strategic decision-making. By combining our expertise in financial management with the principles of the Entrepreneurial Operating System (EOS), we help businesses transform raw data into actionable insights.

Let’s explore five ways you can use your data to identify and address business issues, ultimately propelling your organization toward success.

1. Implement a Robust Issues List System

The EOS framework emphasizes the importance of maintaining an Issues List to keep business challenges visible and organized. As outlined by EOS Worldwide, there are three types of issues lists every organization should maintain:

The VTO (Vision/Traction Organizer) Issues List
The Weekly Leadership Team Issues List
The Departmental Issues List

By categorizing your issues and regularly reviewing your financial data, you can identify trends and patterns that may be contributing to these challenges. For example, if your Weekly Leadership Team Issues List consistently includes concerns about cash flow, it’s time to dive deep into your financial data to uncover the root causes.

2. Leverage Real-Time Financial Dashboards

In our fast-paced business environment, waiting for monthly or quarterly reports is no longer sufficient. Implement real-time financial dashboards that give you instant access to key performance indicators (KPIs). These dashboards can help you:

Monitor cash flow in real-time
Track revenue against projections
Analyze expenses by category
Measure profitability by product or service

By having this information at your fingertips, you can quickly identify issues as they arise and take corrective action before they become major problems.

3. Conduct Regular Financial Health Check-ups

Just as you would visit a doctor for regular check-ups, your business finances need routine examinations. Set up a schedule for comprehensive financial reviews that go beyond surface-level metrics. During these check-ups:

Compare current performance to historical data
Analyze trends in revenue, expenses, and profitability
Review your balance sheet for potential red flags
Assess your debt-to-equity ratio and other key financial ratios

These in-depth analyses can reveal underlying issues that might not be immediately apparent in day-to-day operations.

4. Utilize Predictive Analytics

While historical data is crucial, forward-thinking businesses are increasingly turning to predictive analytics to anticipate future challenges. By applying statistical models and machine learning algorithms to your financial data, you can:

Forecast future revenue and expenses
Identify potential cash flow issues before they occur
Predict seasonal fluctuations in your business
Anticipate market trends that could impact your industry

This proactive approach allows you to address potential issues before they materialize, giving you a competitive edge in your market.

5. Integrate Financial Data with Operational Metrics

Financial data doesn’t exist in a vacuum. To truly uncover business issues, you need to integrate your financial information with operational metrics. This holistic approach can reveal connections between financial performance and other aspects of your business. For example:

Correlate customer satisfaction scores with revenue trends
Analyze the impact of employee turnover on productivity and profitability
Assess how inventory levels affect cash flow and storage costs
Evaluate the ROI of marketing campaigns by tracking associated revenue

By connecting these dots, you can identify issues that span multiple areas of your business and develop comprehensive solutions.

Putting It All Together: The New Economy Approach

At New Economy, we understand that data analysis can be overwhelming, especially for growing businesses. That’s why we’ve developed a unique approach that combines financial expertise with EOS principles to help our clients make sense of their data and drive growth.

Our team of financial experts work closely with you to implement these data-driven strategies, ensuring that you’re not just collecting data, but using it to make informed decisions. As highlighted in our recent video on thriving as an EOS Integrator, we believe in blending leadership and financial insight to create a powerful framework for success.

By leveraging tools like EOS One software and following the EOS Process, we help businesses create a culture of transparency and accountability. This approach ensures that financial data is not just the domain of the accounting department, but a valuable resource for the entire organization.

Remember, the goal is not just to identify issues, but to solve them systematically. As EOS Worldwide explains in their blog post on the power of the Issues List, the key is to discuss, debate, and resolve issues in a structured manner.

In conclusion, your financial data is a goldmine of insights waiting to be uncovered. By implementing these five strategies and partnering with experienced professionals like those at New Economy, you can transform your data into a powerful tool for identifying and addressing business issues. Don’t let valuable insights slip through the cracks – start leveraging your data today to drive your business forward.

For more information on how New Economy CPA can help you implement these strategies, get in touch with us here and we can discuss how to partner together to bring your EOS to life.

Best Financial Practices of Growth-Minded Companies

November 14, 2024/in Budgeting, Entrepreneur, EOS/by Mallory Raber

Growth-minded companies understand that financial management is not just about keeping the books balanced—it’s about leveraging financial data to make smart decisions and fuel sustainable growth.

At New Economy CPA, we’ve worked with numerous entrepreneurs and growing businesses over the past 20 years, and we’ve identified key financial practices that set successful, growth-oriented companies apart. Let’s dive into these best practices that can help you fall back in love with your business and achieve your growth goals.

1. Embrace Timely and Accurate Financial Data

Growth-minded companies recognize that timely and accurate financial data is the foundation of sound decision-making. They don’t rely on guesswork or outdated information. Instead, they ensure their financial records are consistently up-to-date and precise. This practice allows them to:

Respond quickly to market changes
Identify trends and opportunities
Make informed decisions about investments and resource allocation

By having a clear picture of their financial health at all times, these companies can confidently navigate challenges and capitalize on growth opportunities.

2. Implement a Robust Cash Flow Management System

Cash is the lifeblood of any business, and growth-minded companies pay close attention to their cash flow. They implement systems to:

Monitor cash inflows and outflows regularly
Create and maintain cash flow projections
Identify potential cash crunches in advance

With a solid cash flow management system in place, these companies can avoid the stress of unexpected financial shortfalls and ensure they have the resources needed to fuel their growth initiatives.

3. Implement Financial Modeling and Forecasting

Successful growth-oriented businesses don’t just focus on their current financial situation—they look to the future. They use financial modeling and forecasting to:

Project future revenue and expenses
Analyze different growth scenarios
Assess the potential impact of business decisions

This forward-looking approach allows them to make strategic decisions that align with their long-term growth objectives.

4. Develop and Use a Business Scorecard

Growth-minded companies understand the importance of measuring what matters.

We recommend businesses implement EOS for accountability on goal-setting and a core aspect of EOS is the use of a scorecard.

Growth-minded businesses will create and regularly update a business scorecard that includes key performance indicators (KPIs) relevant to their industry and growth goals. This scorecard might include metrics such as:

Revenue growth rate
Customer acquisition cost
Customer lifetime value
Gross profit margin
Employee productivity

In a full EOS process, the scorecard will also include nonfinancial data from all segments of the business.

By tracking these KPIs, they can quickly identify areas that need improvement and make data-driven decisions to optimize their operations.

5. Invest in Financial Expertise

Successful growth-oriented businesses recognize that they can’t do it all alone. They invest in financial expertise, whether by building an in-house finance team or partnering with external professionals like New Economy CPA. This expertise helps them:

Interpret complex financial data
Develop strategic financial plans
Navigate tax implications of growth
Identify opportunities for cost savings and increased profitability

By leveraging financial expertise, these companies can focus on their core competencies while ensuring their finances are managed professionally.

6. Maintain a Strategic Budget

Growth-minded companies don’t view budgeting as a restrictive exercise. Instead, they see it as a strategic tool to align their financial resources with their growth objectives. They create flexible budgets that:

Allocate resources to high-impact growth initiatives
Allow for adjustments based on changing market conditions
Provide a framework for evaluating new opportunities

This approach to budgeting ensures that every dollar spent is contributing to the company’s growth strategy.

7. Regularly Review and Adjust Financial Strategies

The business landscape is constantly evolving, and growth-minded companies know that their financial strategies need to evolve too. They make it a practice to regularly review their financial performance and strategies, adjusting as needed to stay on course for growth. This might involve:

Quarterly financial reviews
Annual strategic planning sessions
Periodic reassessment of financial goals and KPIs

By staying agile and responsive, these companies can capitalize on new opportunities and navigate challenges effectively.

8. Prioritize Financial Transparency

Growth-oriented businesses understand that financial transparency fosters trust and alignment throughout the organization. They make it a priority to:

Share relevant financial information with team members
Educate employees on how their roles impact the company’s financial performance
Celebrate financial wins and openly address challenges

This transparency creates a culture of financial responsibility and empowers employees to make decisions that support the company’s growth objectives.

Let us Help You Get Started

Implementing these financial best practices can transform your business from merely surviving to thriving. At New Economy CPA, we’ve seen firsthand how these practices have helped our clients achieve sustainable growth and gain peace of mind about their financial future.

Remember, you don’t have to navigate your financial journey alone. Whether you’re a small business owner or a startup founder, having the right financial partner can make all the difference. We’re here to help you implement these best practices, gain clarity on your finances, and make the smart decisions that will fuel your growth for years to come.

Ready to take your financial management to the next level and accelerate your company’s growth? Schedule an appointment with New Economy CPA today, and let’s work together to discover your business’s full potential.

3 Keys to Turn Your Financial Budget into a Financial Forecast

March 27, 2024/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

We are coming to the end of the quarter.

So how did your Company do?

At New Economy, we hit our measurables of revenue of $614K, gross profit of 50%, and net profit of 12%.

Also, we hit 80% of our rocks. These are the top priorities for us in the quarter.

What did you learn?

At New Economy, we learned a lot.

We learned that we need to keep making financial investments in our team members through training and growth opportunities.

We also learned we need to increase our financial investments in marketing to help let entrepreneurs know we are here to help them gain control of their finances to make smart decisions.

But what do we do with these learnings from a financial perspective?

At New Economy, we believe you can use this information to forecast for the next quarter.

For a bit of background on creating a budget, check out our blog posting Here.

Your financial budget is set for the and will not change.

However, your financial forecast can change based on what you have learned.

In this article, you will learn about:

The difference between a financial budget and a financial forecast
When and why to update your financial forecast
Top 3 Takeaways

Let’s dive in.

The Difference Between a Financial Budget and a Financial Forecast

Most Companies, including New Economy, perform their financial budgeting towards the end of the year.

Being a December year-end, we typically begin the process in November and wrap up in the first week of January.

The financial budget is the goalpost – think football and field goalposts. You are aiming to kick the ball through the goalposts to score. Or from a financial point of view, achieve the budget which keeps you on the path to achieving your overall goals.

You are estimating things like the investments you need to make into the business that will get allocated to hiring, marketing, and operating expenses.

Further, you are determining your revenue goals and the direct costs to support that revenue.

It is your best guess.

You are painting the financial road map month to month to help you achieve your annual financial goals.

It’s important to note that your budget should not change.

You don’t want to move the goalposts.

We call that cheating 🙂

However, there is another very helpful tool.

It is your financial forecast.

Your financial forecast is identical to your budget. It is set up the same way, looks the same and even works the same.

The biggest difference is you can change your financial forecast.

In fact, at New Economy, we are constantly changing our forecast.

But we are also continuously lining up the financial forecast against the financial budget.

The idea is the financial forecast is updated for what is happening in the business, and in our experience that is lots of change.

At the end of the day, we hold ourselves accountable to the financial budget that was set and use the financial forecast as the real-time road map to get to the intended destination.

It’s kind of like the direction app, Waze.

You enter your destination and ways will give you the directions to get to your destination. This is like your financial budget.

However, then an accident happens.

Waze then recalibrates and provides an alternate route. There are changes but it will still get you to the original destination. This is like your financial projection.

So, we suggest you make sure you have a financial budget.

Then modify that budget by bringing it alive based on changes or real-time information and call that your financial forecast.

In the next section, we will talk about when and why to update your financial forecast.

When and Why to Update Your Financial Forecast

When to change your forecast

By now you should know the difference between a financial budget and a forecast.

The next question is when do we update the financial forecast?

There is a wide range of answers to this question depending on:

The business
The visibility required
The investment of time that’s willing to be made

We have some customers that re-forecast weekly.

They have built a weekly process around this and have determined that weekly forecasting gives them real-time insights that they need to manage the business.

We have some customers that re-forecast monthly or even quarterly.

They will access real-time changes but more so look at monthly budget versus actual information. When items are on and off track, they will trigger changes to the model.

At New Economy, we re-forecast weekly.

We have created a simple process where all the department leaders provide any material changes. It takes us about 15 minutes per week to do this and we will discuss why we do it this way in a bit.

In any case, updating on a weekly, monthly, or quarterly basis you are on the right track.

You need to turn your budget into a forecast applying what you have learned.

Why change your forecast

One of our taglines is we help entrepreneurs gain control of their finances to make smart decisions to build and grow their businesses.

To make smart decisions you need timely and accurate financial information like a financial forecast.

The forecast gives you the most accurate picture of how your business is performing from a financial perspective at any point in time.

Having that timely and accurate financial information allows you to do the following:

Determine if you are on or off track to your budget
Identify areas of opportunity or improvement
Run decision-making scenarios that show the financial impact

The reason New Economy updates the forecast weekly is to have good data for our weekly Leadership Team meeting called our Level 10 meeting.

As part of that weekly Level 10 Meeting, we review a weekly, monthly, and quarterly scorecard which has the financial data we’re measuring.

And you guessed it, one of the sources of that data is our financial forecast.

One last thing to note on the financial forecast.

Once a month has closed, we drop the actuals into the forecast. Refer to more information on the financial close here.

For example, if we are through Q-1, the months of January, February, and March would have actual results in the financial forecast. The remaining nine months would be the projected results.

And we continuously analyze the financial forecast against the original budget.

A financial budget and financial forecast are very powerful business tools. So don’t sleep on the importance of implementing them into your business.

3 Key Takeaways

At New Economy, we want to help you gain control of your finances to make smart decisions. Part of that is understanding your finances and how to drive business performance.

Here are 3 key takeaways.

Make sure you have a budget in place. Don’t change the budget once you set it. And build the budget showing details such as monthly and by-line items.
Make sure you transition your budget into a forecast. Your forecast can be updated weekly, monthly, or quarterly. It can be changed and should be compared back to the budget.
Leverage these tools in your business. They are powerful tools to help you achieve your business goals.

There you have it 🙂

New Economy Team Members are Experts in Accounting for Entrepreneurs

If identifying ways to decrease your taxes is not in your skill set or you want to gain control of your finances to make smart decisions to build and grow your business, New Economy is an excellent partner.

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

Creating a Small Business Budget

October 6, 2023/in Budgeting, Entrepreneur, Startup/by Jeff Allain

A small business budget is like a treasure map. Yup, you heard that correctly. Just think of Jack Sparrow in the Pirates of the Caribbean.

Many entrepreneurs and business owners can communicate where they want to be at some point down the road. For many, that is obtaining the treasure i.e. achieving goals and financial measurables.

But they struggle with how they are going to get there.

That’s where creating a small business budget comes into play. Think of your small business budget as the map to provide the steps to obtaining your treasure.

At New Economy, we believe in one-year, three-year, and 5-year budgets, and as we are entering into the fall, now is the time to start thinking about your budget again. As much as we love the three-year plan, this article is focused on the one-year plan.

We want to help you gain control of your finances to make smart decisions to build and grow your Company.

In this article, you will learn about:

How to get started on preparing your one-year small business year budget
Best practices in creating your one-year small business budget
Utilizing your one-year small business budget to obtain your treasure
3 key takeaways

Let’s dive in.

How to Start Preparing Your One-Year Small Business Budget.

You might be surprised, but some of the most important parts of creating a budget have nothing to do with numbers or spreadsheets. The first part of creating a budget requires stepping back and obtaining a deep understanding of the business.

Understanding the Business

At New Economy, before we prepare a one-year budget, we spend time getting to know the business. This requires meeting with key team members like the Visionary/CEO, Integrator/COO, Operations, and Sales team leaders in an effort to gather as much knowledge as possible about the business.

We do this because we seek to understand. We want to be able to offer up best practices and strategies to help you get closer to achieving your goals. And without historical context, an understanding of the present moment, and the future vision it is difficult to predict.

Here are some of the things we seek to obtain and understand and what you should too if you are preparing your own budget:

Review existing business and financial information like historical financial statements, tax returns, and business plans.
Review and understand unit economics. For example, the cost of making your product or service.
Review pricing strategies.
Understand management’s vision, growth, and exit plan for the business.
Get a sense of the resources needed to achieve the vision. Think people, equipment, technology, and so forth.
Understand the finances and capital in place to support the business.
Understand the sales and marketing process and review all collateral.
Understand the issues and challenges the business is facing.
Get a sense of the overall market conditions and opportunities in the specific industry.
Review key documents like customer agreements, employee agreements, and bank documents.

It seems like a lot and it is, but it’s important. We typically have a few sessions to do these knowledge and data transfers.

By reviewing all of this information, we are able to obtain a baseline understanding of the business and the direction that management is looking to go. We use this as the foundation for building a one-year small business budget. So don’t rush through, take your time and seek to understand. Soon, you’ll have what you need to create the map that leads to your treasure.

Best Practices For Creating Your One-Year Small Business Budget

Okay, now we are ready to get started.

Tools and Technology

There are many forecasting tools out there, and we are big fans of leveraging technology. This allows for automation, reduction of errors, and possibly some time savings.

A few forecasting tools to check out are:

Jirav
Spotlight
Fathom

However, at New Economy, we tend to gravitate towards either Excel or Google Sheets. We find they allow us to customize the levers and unit economics and inputs specifically to your business. In other words, we have extreme flexibility when building out the budget.

There is no wrong answer here, but staying consistent with a single tool is the best route.

General Framework

At New Economy, we build our budgets much like your historical financial statements. So our budgets encompass three financial statements:

The Balance sheet
Profit and loss statement
Statement of cash flows

You’ll need this to produce budget versus actual information but more on that later.

When building out financial statements, we take a detailed approach and use the chart of accounts in your financial statements to build the budget. Yup, we do it line item by line item based on each account so we create variance reporting at month end.

Further, we build out the financial statements by month. So each financial statement will have monthly balances. The end product is a Balance Sheet, Profit and Loss statement, and statement of cash flows that mirrors your financial statement accounts and is produced by month.

Input Sheets

Next, we move into the input sheets. These sheets are the drivers, the levers that feed into the financial statements mentioned above. By setting up input sheets, you are able to run “what if” scenarios and change your assumptions which will ripple throughout your financial statements.

Here are some key examples of input sheets:

Staffing Sheet – This sheet represents the team you have and the new hires you will make. You can add new hires, increase compensation, add benefits, and even remove staff. The idea is to show what your team is going to look like over the next 12 months and how much it is going to cost the business. Again, this is done monthly and at a detailed level.
Operating expense Sheet – This sheet represents the general expenses and overhead needed to support your business over the next twelve months. Think about expenses like rent, insurance, software costs, and marketing expenses. These are your fixed costs and the idea is to show how much it is going to cost the business. Again, this is done monthly at a detailed level.
Revenue and Cogs Sheet – This sheet represents your revenue and the direct costs to produce that revenue. We like to get very detailed on the revenue side. For instance, as you build this sheet out, think about the economic units. Meaning, can you build this sheet out showing # of units x price per unit to get to sales? This allows you to make different assumptions around growth. On the Cogs side, it is variable with revenue. We do build them from the bottom up and get a sense of the costs needed to produce one unit of revenue. But we also look at it from the top down and look at the overall gross profit margin as a gut check. Again, this is done monthly at a detailed level.

Financial Statements

This is where the magic all comes together.

You should have a good understanding of the financials since the budgeted financials are just a forward looking picture of the actual financials you review at the end of each month.

In our framework section, we discussed the basic layout as follows:

Balance sheet by month
Profit and loss sheet by month
Cash Flow Statement by month

Your traditional financial statements that give you a sense of how your business is performing from a financial perspective on a month to month basis. And we have both the actual historical financial statements for each month as well as the future oriented budgeted financial statements out into the future.

Your Actual and Budgeted Balance sheet will show all of your assets, liabilities and equity.

Your Actual and Budgeted Profit and loss statement will show all of your revenue and expenses.

Your Actual and Budgeted Cash Flow statement will show you where your sources and uses of cash are coming from.

All of the financial statements in our budgets are linked up to the input sheets. So any changes you make in the input sheets ripple through the financial statements automatically.

We feel it is important to take a detailed approach to budgeting and have your budgeted financial statements mirror your historical actual financial statements which we discuss in the next section.

Utilizing Your One-Year Small Business Budget to Obtain Your Treasure

Now that you have a one year budget in place, let’s talk about the ways to use it.

Variance reporting – Variance reporting is something that happens at month end. Once you close the books for a month and have your actual financial statements we review a variance report. This can be system generated from an accounting system like QBO. The value here is understanding which line items are on track or off track against the budget. Then you can assign a team member to look into why and help understand if any necessary changes are needed to get things back on track.
What if scenarios – We often get asked questions like “can we afford to hire?” Or “if we do hire, what is the impact on profitability”? While most entrepreneurs have a pretty good gut answer we prefer to utilize the data. We would run the hire and salary through the staffing tab to see the impact on the profit and loss statement. Then we can answer the question accurately as to the financial impact of that decision. So you can use the budget to get a sense of the financial impact of any decision you are about to make in your business.
Reforecasting – As the months march on we should be learning about the business. We are aiming for the results laid out in the original budget. However, much of the learning we are obtaining may result in some re forecasting. For instance, maybe we want to increase marketing spend above the budget amount because it is resulting in revenues above the budget amount. So you can use the budget to create a reforecast which is simply changing underlying assumptions in the input tabs based on the direction of the business. But be careful, you want to continue to hold yourself accountable to the original budget.

There you have it. We hope the road map above gets you closer to your treasure.

Here are three key takeaways:

First and foremost, every Company needs a budget. A budget will help you understand the resources needed to chase after your vision. Further, budget will help you to determine on a month to month basis whether or not you are on track.
Leverage your data to make smart decisions. If you have questions or decisions to make, use your budget to understand the financial implication of those decisions. You now have a tool to help corroborate your “gut” response to decisions.
Turn your budget into a forecast. Every month, you will be gaining new insights into your business. You have the opportunity to apply that learning along with the financial impact by reforecasting your numbers. We suggest doing this on a monthly or quarterly basis. But keep your original budget intact as those are the goal posts for the year.

New Economy Team Members are Experts in Accounting for Entrepreneurs

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

3 Ways to Cut Business Expenses

August 14, 2023/in Budgeting, Entrepreneur, Startup/by Jeff Allain

As a growth stage entrepreneur, you’re constantly thinking about ways to grow your Company.

An important thing to consider as you grow is keeping expenses on track. We have learned that growth can suck cash and a big part of that is expense management.

This begs the question: Do you have an expense management process in place that effectively cuts unnecessary business expenses?

At New Economy, this is on our minds too.

Why, you ask?

It aligns with our efforts of helping you gain control of your finances to make smart decisions to build and grow your company.

In this article, you will learn:

What an expense management process looks like
What types of questions to ask when identifying expenses to cut
How to actually cut or reduce expenses
3 key takeaways related to cutting business expenses

Let’s dive in.

What is an Expense Management Process?

There are a few important things to discuss here.

First off, before we get into the process itself we’d like to quickly cover an important financial tool.

Every business should have a detailed budget. The budget should be prepared monthly and be detailed by line item (Refer to our blog post on top 4 financial tools). In this case, our focus is on the expense line items. If you don’t have this in place, you should.

Why? You are making important bets and decisions on where you need to invest your resources to achieve your goals.

Ok, now we can move on to the process which can be achieved at a detailed operational level and at a higher financial level.

Let’s start with the detailed operational level. The benefit here is:

You are ensuring you are obtaining the proper tax deductions
You are able to manage expenses
You are going to get more insights to budget
You are minimizing fraud

Every business is different and there are employee expenses such as travel and meals and then business expenses such as inventory purchases and marketing expenses.

Here are a few keys for every business regardless of the type of expense:

Have a written policy that is followed by all
Keep everyone from employees to managers accountable to the process
Ensure the process has built into it proper documentation such as expense reports and purchase orders
Ensure the process has proper approval built into it. Meaning, make sure a manager is approving the employee expense report or purchase order

Moving on to the higher financial level. The benefit here is:

Having data to make timely decisions
Knowing what is on-track or off track
Identifying root causes of overspending
Fixing problems real-time

Here the process goes back to the budget we discussed. At month’s end, the actual amounts for all expense line items should be compared to the budgeted amounts. All line items should be analyzed to determine what we are learning.

For instance, if a line item is over in a particular month, why is that? Maybe it’s a timing issue and we had to front-load expenses and no additional action is required. Or maybe, the marketing team has overspent and this needs to be brought to their attention to reduce expenses in a subsequent month to keep things on track.

The key here is to create both types of processes, put someone in charge of managing them, and use the information you are getting to cut business expenses to help you achieve your financial goals.

What Type of Questions Should We Ask When Looking to Cut Expenses?

We believe cutting expenses to achieve your financial goals is both an art and a science. You don’t want to simply cut an expense because it is over your budget. Maybe the expense that is over budget is helping you to achieve your business goals. In that case, why would you cut it?

This leads to our first question. We like to ask: “Does this expense get us closer to achieving our goals?”.

The question is to get you to really think about where you are allocating your capital and get you to prioritize. If the expense is mission critical, then we often advise to proceed with caution and perhaps find other expenses that are not as much of a priority.

Another important question to ask yourself is: “Why is this expense over and above the budget?”.

We have found that getting to the root cause often requires us to go deep. Meaning, we try to ask why at least 5 times to get to the bottom of it. Here is an example.

The marketing budget is over budget for the month by 25% or $15,000 but why:

Why 1x – Because the marketing team overspent
Why 2x – Because they needed additional support to achieve lead generation
Why 3x – Because they underestimated the resources needed
Why 4x – Because their original submitted budget was not scrutinized enough
Why 5X – Because the process for establishing budgets was not followed

As you can see, as you keep going deeper you get closer and closer to the real why. And by having the real answer you are able to make a smart decision. You can decide to re-forecast and increase the budget over the remainder of the year. Or you can decide to work with the marketing team on staying on budget and lower expectations on lead generation based on the resources deployed.

Lastly, another favorite question is: “Who is accountable for this expense line item?”.

We believe that whatever we measure and manage will improve and get better. And part of this is giving responsibility to team members to manage and own the number.

So back to the example above, we would suggest that the marketing team leader is the person that should be taking ownership of approving the budget for the marketing team. This individual is now responsible for providing thoughts and actionable insights on getting the budget back on track. Never underestimate the power of “who” …..as in, who is responsible and accountable for this.

How Do We Actually Cut Expenses?

This is a delicate topic. But as your Company is growing, you may find that expenses naturally start to grow. Growth sucks cash in the form of expenses. But cutting expenses is one way to help you stay on track for achieving your business goals.

Here are some tips for cutting expenses:

Communicate your “revised vision” with the reduced expenses in the form of a re-forecast to your team. This paints a new picture of what we are aiming for on the expense side. And call out those specific line items and explain the why behind them. The point is, involve your team in this conversation.
Have open and honest communication with your vendors. You need your vendors just as much as your team and customers. They are helping to provide the goods and services needed to grow the business. So inform them by communicating timely and clearly so they can plan ahead.
Continue to hold managers accountable, ensuring they are driving the change needed to reduce expenses. This should be emphasized as a top priority that needs to follow through based upon an agreed timeline.
Keep banging the drum so that your expense management process is followed by all. Let everyone know they can play a role here to ensure the company succeeds.

So as you can see, there is no silver bullet. No doubt you can focus on certain line items but we encourage our companies to think before acting and not making quick decisions. We like to take a thoughtful approach and balance the tension between the short-term and long-term goals of the business.

Note, per the Small Business Administration one of the top reasons Companies don’t make it is they run out of cash. And the reason they run out of cash is they have more money going out in the form of expenses than money coming in in the form of revenue.

So this is a financial discipline worth investing in for your business.

So one last question, how is your expense management process and what needs to change?

3 Key Takeaways Related to Cutting Expenses

If you want to build and grow your business, you need to make sure you are keeping an eye on expense management.

Here are three key takeaways related to reducing your expenses:

Make sure you have done the hard work of building a detailed monthly budget. Review the budget versus actual by line item each month. Reflect on what you are learning. And determine what may need to change and re-forecast based on your learning.
Lean into your process. Make sure that you have an expense management process in place that is followed by all. Assign one manager to oversee this to make sure that they are banging the drum on the expectations.
Assign team members to be accountable for specific line items. Have them own the expenses and be prepared to offer up the “why”, suggestions for improvement, and take on the responsibility of the execution of any change needed.

New Economy Team Members are Experts in Accounting for Entrepreneurs

If your Company is off track and expense management isn’t your thing, you struggle with building budgets that properly allocate funds, or you want to gain control of your finances to make smart decisions to build and grow your business, New Economy is an excellent partner.

We’ll help you get your accounting done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

Use Efficient Data to Reach Business Financial Goals

April 24, 2023/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

If you are a typical business owner, there’s a good chance you wake up at 2 am some mornings with an uneasy feeling – trying to crunch numbers in your head and get an accurate pulse of what’s going on in your business. But with out-of-date and tough-to-read data, things just aren’t adding up.

So you take the pulse based on your gut. But deep down, you know this isn’t going to get your business where you want it to be.

New Ecomony’s solution – formulate your data in a way that allows you to consistently and accurately take the pulse of your business so you can take effective action.

If this sounds good, read on.

Do You Have Business Goals?

Goals are defined as a desired result that you, or a group of people, plan and commit to achieving. Does your business have them? If not, you should.

Here are some of our best tips for setting goals for your business:

Get Your Team Involved

Your team is full of ideas and has an interest in the success of your business. Get them involved. Get their buy-in, and gather their thoughts and ideas. Lean into what they have to say and use it to help you build out your goals.

Think Through Your Priorities

Think of your top 1-3 priorities in your business that need to be focused on to move it forward. This may take some deep thought and serious evaluation, but it will be worth it.

Ask yourself:

Where is your business now?
What are you trying to accomplish?
Where are you trying to go?

Your goals should help you accomplish your priorities.

Create SMART Goals

Following the SMART goals framework helps you build good goals.

Here’s what we mean:

S – Specific
- Make your goals specific and narrow.
M – Measurable
- Define how you will measure your success towards reaching the goal.
A – Achievable
- You have to be able to accomplish your goal. Don’t set the bar too high.
R – Relevant
- Make sure your goals align with your priorities.
T – Time-based
- Set a realistic end date for reaching your goals.

Document Your Goals

Once you’ve built out your goals, document them.

Make them clear to your team.

Hold yourself accountable.

Having goals won’t do you any good if you are the only person who knows they exist.

What Does Your Data Look Like?

Financially speaking there are certain data components that can help to determine if you are on or off track. When you track the right data, you have the opportunity to make decisions to right the ship when things are off track.

Here’s what your data should look like:

Every Business Should Have a 1, 3, and 5-Year Financial Plan

A strong financial plan will be broken into 1-year, 3-year, and 5-year segments. You’ll be able to refer back to your financial plan to bring the business you want to life. Think of it as a roadmap.

You can break your financial plan down by month and measure it against actual financial results. This is the KEY. If something is off, you need to be able to gain an understanding as to why.

Assign ownership to an individual to get to the root cause and offer up suggestions to get things back on track.

By following along with your plan, you can also narrow down what resources are needed as you go, like:

Cash
Customers
Employees
Equipment

As you build out your financial plan, use our top 4 financial tools to guide you.

Use a Weekly Scorecard

Every business should have a weekly scorecard. At New Economy, we believe a good Key Performance Indicator (KPI) in the form of a scorecard will help you manage data and provide you with a pulse of your business on a consistent basis. This will allow you to take prompt, effective action.

Here’s how you can create an effective scorecard:

Identify and agree on the top 10 items to measure
Make someone accountable for each measure
Create goals for each measurable
Make the measurable time sensitive
Make someone accountable for getting the measurable and filling in the scorecard each week
Use it

Each Team Member Should be in Charge of a Measurable

Keeping track of your measurables is essential, but the task shouldn’t just fall on one person’s shoulders. Give everyone on your team a number to keep track of. Doing this:

Cuts through murkiness between manager and direct reports
Create accountability
Provides clarity and commitment
Produces results (this is a big one as we are trying to use data to drive towards our goals)

For example, if you are a service-based company, you might measure revenue by employee, and each employee understands what is expected of them. If they achieve their measurable, which should be aligned with the business goals and overall measurables, then you have a high degree of alignment and can rest assured knowing team members rowing in the right direction.

Bring Your Data to Life, Achieve Your Goals

By having a Financial Model, Weekly Scorecard, and Individual Measurables, you are bringing to life the data road map which can be utilized to help you achieve your goals.

A few final thoughts to remember before you put the plan into action:

Be open to learning. What is the data telling you?
Dig deep. Is something off track? Get to the root cause.
Apply what you have learned and get things back on track.

If you’re searching for a financial partner to help you use efficient data to reach your business goals, schedule a call with our Founder, Jeff! Our mission is to help entrepreneurs gain control of their finances so they can make smart decisions to build and grow their businesses, and we’d love to help you!

Top Ways to Prepare for a Recession

June 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Talks of a recession are growing as the economy continues to feel the negative effects of the Corona Virus and the war in Ukraine.

Both have led to lingering supply chain issues, inflation reaching record highs, capital markets tightening up, and talent shortages across nearly every industry.

For small business owners, a looming recession can be frightening. The last recession, which began in 2007 and lasted through 2010, forced nearly 1.8 million small businesses to go under.

Now, business owners are intimidated and again struggling to keep up and adapt to a market that is trending downwards.

However, there’s no need to fear, there is still time to prepare and strengthen your business for a potential recession. Here are some of the top ways to do it:

Review Your Expenses in Detail

As you prepare to fight the storm of a recession, the first place to look is your expenses. You’ve likely already sifted through your expenses and cut back in places where you were overspending or spending unnecessarily, but now it is time to go back to the drawing board.

Instead of starting with all of the expenses you can cut, start by defining your necessary expenses.

Rent
Utilities
Inventory
Insurance
Employee salaries
Etc.

From there, crosscheck these necessities with your current spending habits. What expenses don’t fit into these categories?

This will give you an idea of what expenses you can do without when the time comes to save money.

Manage Your Cash Flow Weekly

We’ve said it before, and we promise to say it again, cash flow is the lifeblood of your business. It’s a strong indicator of financial health and without a positive cash flow your business won’t survive a recession.

You can build your cash flow by:

Tracking related metrics and utilizing forecasts to produce better outcomes.
Keeping a close watch on your accounts receivable by collecting payments on time and knowing what you are owed.
Updating vendor and partner contracts to ensure you are not overpaying.
Running a pricing analysis to ensure you are still charging the right prices.

As you start implementing these strategies, remember to wrap your arms around your cash flow and manage it weekly.

New Economy’s FREE Cash Flow Projection Tool can help you do just that. It was built to help you predict your cash flow and make smart decisions about spending and saving. With our tool, you’ll be able to see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence.

Run Scenarios in Your Financial Projections

Your financial projections can determine how well your business copes with the effects of a recession. They’ll use previous data to help you indicate where you may see problems down the road.

As you prepare for a recession, you should create financial projections for what would happen if you cut expenses, saw changes in revenue, increase or decrease your prices, and so forth. This will give you better visibility as you navigate the downturn and help you make the right decisions to keep your business afloat.

Revisit Financing Options Now

Before it’s too late, explore your financing options. Now is a great time to speak with lenders or investors, apply for grants, or even start a crowdfunding campaign.

However, be clear with how much additional cash you need to raise before you dive in. You can use the free cash flow tool here, as well, to gain greater visibility and determine how much you may need to survive a recession.

Get Accurate and Updated Financials

Knowing where your business stands at all times is key to preparing for and withstanding a recession.

There are multiple tools you can use to get accurate and updated financials. The top four tools include:

Cash Flow Tool
- As we mentioned, this helps measure the inflows and outflows that affect your bottom line.
Weekly Scorecard
- This includes the KPIs you need to reach your business goals.

Financial Projections
- These are predictive analyses you can use to help you make informed decisions.
Month-End Close
- This is a monthly recap of your financial statements. By following the steps needed to complete your month-end close, you’ll also be staying on top of your finances month-to-month, which is essential for preparing for a recession.

New Economy Can Help You Prepare

For business owners, the thought of a recession can be intimidating. However, with preparation, you can ensure your business comes out on the other side.

We’ve covered the importance of reviewing your expenses in detail, managing your cash flow weekly, running scenarios in your financial projections, revisiting financing options, and getting accurate and updated financials, but if you’re still struggling to prepare for a recession, turn to New Economy for guidance!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business – and that includes before, during, and after a recession. Contact us today to learn more about how we can help!

5 Ways to Manage Cash Burn and Runway

April 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Every business, especially new startups or quickly growing businesses, should be keeping a close eye on their cash burn and runway.

These metrics provide essential insight into the sustainability of your spending habits and the financial health of your business. If cash burn and runway are struggling, your business will also struggle.

Below is an overview of what exactly cash burn and runway mean for your business and how you can manage them.

What is Cash Burn?

Cash burn is a measure of how quickly your business uses your cash balance. In other words, cash burn is the measure of how much cash is flowing out of your business.

Typically, cash burn is measured on a monthly basis. However, in some cases, when the need to use cash increases, it can be measured on a weekly or even daily basis.

Why is Cash Burn Important?

Cash burn rate is a great indicator of the overall health of your business. It shows you:

How long you have until you run out of cash
If you have a healthy cash flow
How fast you are spending the money you have on hand

It’s important to find a healthy cash burn rate. In fact, a recent study shows that nearly 82% of businesses fail because of cash flow problems.

If you are spending your cash too quickly, it can lead to a failed business. If you aren’t spending your cash fast enough, it can indicate a lack of growth and investment in your business.

For young businesses and startups, cash burn is especially relevant. Typically, profits are low during this time, which means managing your spending is even more important.

How to Calculate Cash Burn

Cash burn for any given period of time is fairly easy to calculate. First, you have to identify your start and ending cash balance (found on your statement of cash flows) and then find the difference between those numbers. Next, you divide the difference by the number of months in the given period. The total is your monthly cash burn rate.

Here is an example:

$300,000(starting balance as of Jan 1) – $120,000(ending balance as of March 31) = $180,000(difference)

$180,000(difference) / 3 (number of months in the period) = $60,000 monthly cash burn rate

Now that you know how quickly you are going through your cash, you need to determine how long you can withstand that spending rate. This is referred to as your runway.

What is Runway and How is it Calculated?

Runway is the amount of time your business can continue to operate with your current cash burn rate. Like burn rate, a healthy balance of runway is essential for any business.

If you have a short runway, your business is quickly running out of time to survive. However, while a long runway sounds appealing, it could also mean you are not properly allocating your cash reserves.

To calculate your runway, simply divide your total cash reserve by your burn rate.

For example:

$120,000(total cash reserve) / $60,000(burn rate) = 2 months left before your business runs out of cash.

Tips for Managing Cash Burn and Runway

Ideally, your business will have a negative cash burn rate. This would indicate that you are bringing in more money than you are spending and would, therefore, lengthen your runway.

Here are several proven ways to manage your cash burn and runway:

1. Reduce or Defer Non-Essential Expenses

You’ll want to take a close look at your budget to determine if your expenses are bringing value to your business.

Find where you can cut, reduce, or defer certain expenses. However, make sure your changes are sustainable. Making too many changes too quickly can stunt growth.

2. Pay Bills Slower

If you aren’t reaping a benefit from paying your bills before they are due, hold off on your payments.

This allows you to hold on to your cash for longer periods of time.

3. Bill Sooner and Collect Faster

If you’re struggling with your cash burn and runway, one of the best adjustments is collecting your money sooner rather than later.

Send your invoices right away and include terms for payment. If you’re struggling with collecting payments in general, try implementing a late fee or improving your collection methods.

4. Raise Additional Funds

Many new start-ups and small businesses have to go through multiple rounds of funding before they start seeing substantial profits.

After calculations, if your cash burn and runway are not where you want them to be, consider raising additional funds.

5. Increase Prices

Inaccurate or low prices can negatively impact your profits. If you’re looking for more cash inflows, consider running a pricing analysis. Chances are, you’re charging too little for your products and/or services.

Our Free Cash Flow Tool Can Help

Having clear predictions of your cash burn and runway can mean the difference between success and failure for your business.

That’s why we put together a free cash flow tool that lets you plan your budget in advance and see how much money is coming in and out of your business over time.

With the help of New Economy, you’ll gain control over your finances and position your business for success! Contact us today to learn more ways we can help you!

Evaluating Your Growing Company’s Budget as Year-End Approaches

October 19, 2021/in Budgeting, Finance, Startup/by Mallory Raber

Budgets are essential for success in your growing company. They work as a guide to determine the resources needed to execute your vision, help with decision-making, and can serve as the backbone of a financially healthy business.

However, plenty of growing companies create a budget and then push it to the side. If growth and a strong financial system are important to you, you’re going to want to keep your budget close, and consistently refer back to it each month to ensure you are on the right track.

Not only does properly evaluating your budget serve you in the current year, but it better equips you for the year ahead.

Here are several ways you can evaluate your budget as year-end approaches.

Compare to Actuals and Make Adjustments

Running a budget variance report is one of the most effective ways to evaluate your budget. Budget variance looks at your budget and compares it to your actuals. This will show you all of the areas where improvements could be made.

From there you can make adjustments, based on data, that will redirect or improve your spending for the remainder of the year, making sure you finish strong and have a solid foundation for the year ahead. We refer to this as forecasting and you still want to hold yourself accountable to the original budget.

Making changes now will put you in a good place as you dive into creating your budget for the upcoming year. Spending that is recurring or on your budget in the previous year will be accounted for, meaning you can lean into those numbers and be confident in your spending plan.

Plan for Changes

As you wrap up the current year and head into the new, you probably have a good idea of any new changes and resources that will be needed to drive your future vision.

Maybe you’re hoping to boost sales and believe launching a new marketing campaign will do just that. Be sure you account for this increase when preparing your budget for the year ahead. You also should consider other expenses like:

Changing to higher-priced vendors
Outsourcing work
Hiring new team members

These are all expenses you may not have had in the previous year but can foresee for the year ahead.

Inversely, you may be cutting back your expenses by:

Changing to lower-priced vendors
Improving your sales channels
Lowering your costs of goods sold

Also, consider the ways in which you will fund your budget based on your plans:

Maybe you need to raise capital through equity financing to support growth
Or perhaps there is debt capital available for cash shortfalls
Or maybe your plan is supported through self-generating cashflows

Be sure to plan for changes either way and incorporate them into your budget. This will help strengthen your budget and hopefully lower the number of changes you’ll need to make throughout the year.

Tie Your Budget Back Into Your Goals

Your budget was likely created with your goals in mind, so have you checked to make sure you’re still on track to reach those goals? And what have you learned in this process that can be applied moving forward?

Being within your budget is great, and is a goal within itself, but if you aren’t reaching your other previously set goals, you still may need to make adjustments.

For example, let’s say you want to lower your debt by year-end and you’ve been evaluating your budget to see if there are any areas where money isn’t fully being used. You notice you’ve been within your expected spending for marketing, in fact, you have allocated more money to marketing expenses than needed, and you have extra funds in this area. This may be the perfect opportunity to shift some of that remaining cash towards paying down your debt.

One of the most important takeaways from the budgeting process is learning. And then becoming better predictors based on that learning as we apply it to the future.

Involve Your Team

There’s a good chance you relied on your team to help you create a budget, so it’d be beneficial for you to turn to your team to help you evaluate it as well. They may be more familiar with spending and the pulse of day-to-day operations.

Involving your team can bring about new insight for:

Lowering spending in certain areas
Being aware of areas the budget could be adjusted
Knowing where there may be changes coming

An added benefit to involving your team is that it creates an extra layer of accountability to their spending. When they are active in creating and evaluating the budget, they have a better idea of what is going on financially and how and where money should be spent.

Turn to a Trusted Financial Partner

Evaluating your budget prior to year-end is incredibly important. Not only will it help you make adjustments to get you where you want to be this year, but it will also assist in creating a strong budget for the year ahead.

To make sure your evaluation process is giving you all of the information you need to be successful, consider working with a trusted accounting partner, like New Economy. We’ll make sure your budget is accurate and focused on reaching your goals and take time to create a budget strategy with you that makes sense for your business. Through our partnership, you can confidently be prepared for the year ahead.

Want to learn more about how we help growth-minded entrepreneurs? Schedule an appointment and we’d love to learn more about your business.

Download Our Free Cash Flow Tool

Want to dig deeper into your cash flow insights? We’ve created a free tool that will help you truly understand cash flow projection.

Download our cash flow tool here