Startup – Page 2 – New Economy CPA

What is the ROI for Digital Marketing?

July 7, 2023/in Entrepreneur, Startup/by Jeff Allain

As a growth stage entrepreneur, you’re constantly thinking about ways to grow your Company. Considering the world is more virtually connected than ever, with customers spending more and more time online, digital marketing is becoming a vital part of a robust business strategy. Which begs the question: what is the ROI for digital marketing?

At New Economy, it’s 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. And to grow your business you are going to have to make favorable investments in marketing.

In this article, you will learn:

What digital marketing is
What types of digital marketing channels you can invest in
Ways to calculate ROI for digital marketing strategies
3 key takeaways related to investing in digital marketing and the ROI

Note, before getting into any digital marketing strategies it’s very important to understand who your target audience is and where they hang out.

Let’s dive in.

What is Digital Marketing?

Digital marketing is an umbrella term for all of your online marketing efforts.

This can encompass the following:

Content marketing
Social media marketing
Pay-per-click advertising
Affiliate marketing
Native advertising
Mobile marketing
Email marketing
Online PR
Inbound marketing
Sponsored content
Search engine optimization (SEO)

The best digital marketing strategies focus on specific audiences and support the overall business strategy. Today, consumers are relying on digital channels to discover, research, and purchase products and services. Therefore, investing in digital marketing and knowing the return on investment can be a good business decision.

A few interesting digital marketing statistics per Tomas Laurinavicius’s “Mind-blowing Digital Marketing ROI Statistics” are as follows:

The average return on investment (ROI) from email marketing stands at 4,200%
Individuals who use blogging as a marketing tool are 13 times more likely to get a positive ROI
72% of marketers improve their engagement through content marketing
Companies generate an average of $2 in earnings for every $1 they spend on Google ads
64% of internet users are more likely to purchase a product online after watching a video

Pretty interesting stats, right?

There is no doubt that every company needs to have a marketing budget to help ensure that proper resources are allocated to meet the goals of the Company.

Here is a quick question for you to consider.

What digital marketing strategies are you currently investing in and how do you decide if you are investing enough?

On a monthly basis, New Economy is investing in email marketing, blogging, and content creation which is about 1% of our revenue. As we look forward to 2024 we are planning to increase that investment to 3-5% of our revenue. We still think this is a bit low and are continuing to reflect on whether or not this is enough to help us reach our goals.

Which Digital Marketing Channels Should You Invest In?

Unfortunately, there is no broad-based answer to this question.

As we mentioned earlier, you need a thorough understanding of your target audience. For instance:

Who are you trying to reach?
What is their communication style and preference?
What content do they enjoy most?
Which digital marketing channels do they use?

It is worth taking the time to answer the above questions as it will save you time and money in the long run.

At New Economy, we have learned a lot about our ideal customers and where they hang out. So we will speak to those digital marketing channels and why we are investing in them.

Content Marketing

We believe content marketing is the foundation of our digital marketing strategies. Through content creation, we aim to capture attention and then nurture that interest with email marketing (which we describe below).

Our content marketing takes the form of blogs, videos, one-pagers, client case studies, and social media posts. The key is to create high-quality content that adds value to your targeted customer.

Click here for an example of the client case study. Here we identified issues and challenges that the client was facing and discussed how we were able to help them to go from a place of frustration and chaos around their financial situation to a place of confidence.

Email Marketing

Even though we get tons and tons of emails, email marketing typically delivers one of the highest returns on investment (ROI). We are about to launch our weekly email marketing campaign with the idea of trying to educate our customers and prospects. Our intention is to build the relationship and establish trust and credibility.

The end goal is to get our prospects to our website and ultimately generate a conversion via our “call to action button”. Here, we are taking a long-term approach by trying to capture attention and create interest over time.

Social Media Marketing

Here is a staggering statistic: 70% of Americans utilize social media.

Therefore, this has become a powerful digital marketing tool for growth-stage entrepreneurs. Each social media channel caters to a different audience so it is important to know who your audience is and where they hang out.

Our focus here is to build relationships with key people at targeted companies. We do this with an educational and informative content style and spend much of our time on LinkedIn, YouTube, and Facebook.

As we seek to improve our digital marketing strategies, we base our decision on data and not assumptions. So how do we calculate the return on investment (ROI) for our digital marketing strategies?

Keep reading 🙂

How Do You Calculate the ROI for Digital Marketing Channels?

Let’s continue on with the digital marketing channels noted above to calculate the return on investment (ROI) using New Economy as a guide.

Content Marketing

When a Company doesn’t have time or bandwidth to produce its own content, it might outsource its content creation. While staffing someone outside of your office will cost your company money, think of the extra hours your team will have for other productive projects if they don’t have to create content.

Example:

New Economy wants to publish 8 social media posts and 2 blog posts per month. In order to do this it will take some investment in labor and technology.

They use this formula to calculate their ROI:

Internal Cost

15 hours per month x $150 per hour = $2,250

Technology Costs = $500

Total Monthly Cost = $2,750

External Cost

Marketing Firm Retainer = $1,200

By outsourcing to an external marketing firm, we are realizing a gain. The outsourced firm is able to do this much more cost-effectively. However, the true benefit is the recapture of time under the Opportunity cost. By spending 15 fewer hours on marketing, we are able to spend time on direct sales which could result in a new client and add $36,000 to revenue.

In addition, we look at the ROI through a different lens. If we spend $14,400 ($1,200 x 12 mth) on outsourcing our marketing efforts and get 2 new clients, that’s an additional $72,000 in revenue. This results in a return of $57,600 or 407% return on investment; we will take that.

Email Marketing

Email marketing is a great way to nurture current leads. It provides value and establishes you as a thought leader. We currently spend about 2 hours per week or 8 hours per month on creating our email marketing campaigns.

Example:

New Economy wants to publish 4 email newsletters per month. In order to do this it will take some investment in labor and technology.

They use this formula to calculate their ROI:

Internal Cost

8 hours per month x $150 per hour = $1,200

Technology Costs = $50

Total Monthly Cost = $1,250

If we spend $15,000 ($1,250 x 12 mth) on outsourcing our marketing efforts that results in 2 new clients for an additional $72,000 in revenue which is a return of $57,000 or 380% return on investment; We will take that.

There is an old saying. It takes money to make money.

We believe that digital marketing has a pretty big upside. There are ways to identify the right strategies and then determine if they are generating returns for your business.

So take a look at your profit and loss statement and review your marketing line items. What type of ROI are they generating for your business?

3 Key Takeaways Related to Digital Marketing and Calculating Your ROI

If you want to build and grow your business, you need to make sure you are properly budgeting for digital marketing. Further, you should continuously evolve the return on these investments (ROI).

Here are three key takeaways related to calculating your ROI on digital marketing:

Make sure you have done the hard work of understanding who you are and who your customer is. If you have not done this work, you are wasting your time and money on digital marketing. For real.
Expect a positive return on your investment. We believe it is reasonable to expect a positive ROI over the long term. After all, if they don’t generate a positive ROI, why would we do them? So get serious about your investments and calculate the returns on a quarterly basis.
Realize that digital marketing investments do not operate on a stand-alone basis. This can make calculating the exact ROI for any specific investment difficult but it is worth pursuing. We strive for “reasonable and accurate enough” to make smart decisions based on data.

New Economy Team Members are Experts in Accounting for Entrepreneurs

If calculating returns on investments 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!

Startup Accounting: 5 Essential Processes for Success

March 20, 2023/in Accounting Process, Entrepreneur, Startup/by Jeff Allain

As a growing startup, your business will eventually need to implement several key processes to continue achieving your business goals.

These processes will improve efficiency and help you complete the actions or operations needed to achieve your desired result.

Here at New Economy, we focus our processes on data. This gives us the best results and positions us for success.

We have identified five essential processes that are handled by our team of accountants, controllers, and CFOs. This article will dive into these processes and explain how they work.

1. Bill Pay Process

Knowing how much cash (when and to whom it’s going) is leaving your business is important. This is where a bill paying process comes into play.

Here are some key steps for this process:

Establish a weekly rhythm to focus on this process. We like to use a schedule or calendar.
Ensure all documentation has been received such as invoices, shipping documents, and purchase orders.
Produce an accounts payable aging to show which amounts are due, to whom, and when.
Establish an approval process for payment ensuring that the goods or services have been actually received or provided.
Leverage technology to store digital documents and automate the approval process using technology like bill.com.

The bill pay processes are typically performed by staff or a senior accountant. The information is then leveled up into cash flow forecasting.

2. Cash Flow Forecasting Process

Attaching itself to the tactical bill pay process is a more strategic process in order to gain future visibility. Understanding your cash flow gaps is crucial to managing your business and achieving your goals.

Here are some key steps for this process:

Layer on extra time to your weekly bill pay meeting rhythm to get more strategic.
Download New Economy’s simple free cash flow tool at https://neweconomycpa.com/free-cashflow-tool/.
Load in all expected money due over the next 13 weeks and all money going out over the next 13 weeks. Then, verify the figure to your AR and AP aging.
Analyze and review for cash flow gaps.
Determine the next steps to cover the gap such as accelerating AR collections, leveraging a short-term loan, or extending terms on your accounts payable.

The cash flow forecasting process is a beauty. This process has helped many entrepreneurs sleep at night as it provides the visibility and data they need to make good decisions. This process is usually owned by a more experienced team member, like a controller.

3. Month-End Closing Process

All businesses need timely and accurate financial statements. Obtaining them each month allows you to determine how your business performed. This is beneficial as it will give you a snapshot of the financial condition of your business.

Here are some key steps for this process:

Set up an agreed-upon timeline to have the books closed. This is typically by the 15th of the month for the preceding month.
Prepare a month-end closing checklist. This includes things like complete bank reconciliations, credit card reconciliations, and ensuring revenue is properly recognized.
Complete the month end closing checklist to ensure that the accounting policies are followed. To ensure the books are accurate, accounting policies must be executed.
Book all adjusting entries that are necessary for accurate books.

The goal of the month-end closing process is to ensure that your numbers are accurate. This is important as you’ll need to leverage your month-end financials to build and grow your business. This process is usually owned by a more experienced team member, like a controller.

4. Budget vs Actual Process

Attaching to the month-end close process is the budget versus actual process. This process allows you to understand, line item by line item, how the business is performing against plan.

Here are some key steps to this process:

Load your budget into your accounting system.
Produce a system-generated budget versus actual report.
Review variances and determine if the variance is a timing issue or a real business issue that needs to be addressed.
Share the variances with department heads or others that can be held accountable to influence change.

The goal of this process is to determine where the business is over or underperforming. This is great data to have as points you in the right direction and gives you the opportunity to ask yourself if things need to change. This process is usually owned by a more experienced team member, like a controller.

5. Financial Model Process

Building and maintaining a three-statement financial model by month, over the next 12-18 months, is crucial. It provides a picture of what the business looks like in the future and what resources are needed to bring that vision alive.

Here are some key steps to this process:

Gain an understanding of the overall business model and drivers.
Review relevant contracts and agreements that are pertinent to the business.
Build out a three-statement model being a balance sheet, income statement, and cash flow.
Adjust the model each month based on what you have learned about the business.
Iterate, iterate, iterate as this is a living and breathing document.

The goal of this process is to provide you with a flexible picture, based on your assumptions, of the future financial condition of the business. Further, it will provide you with a road map of where the business is headed. This process is usually owned by a more experienced team member, like a CFO.

Build Out These Processes for Success

With due diligence and the help of these processes, your business will be well-positioned for success.

If building out these processes sounds overwhelming or too time-consuming, reach out to New Economy. We help entrepreneurs gain control of their finances and make smart decisions.

Head over to our website for related blog postings and don’t forget to schedule a time to meet with our founder, Jeff. He’d love to learn more about your business and walk you through how New Economy can help it grow!

What Will it Cost me to Outsource my Accounting?

September 26, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

Outsourcing accounting is trending in the business world.

Depending on the role you choose to outsource, entrepreneurs reap many benefits, like:

Accurate and timely financial insight
Strategic support and guidance
More time to work on the business instead of in it
Cost savings

If you’re exploring this option for your business, one of your primary questions is most likely, what will it cost me to outsource my accounting?

The following article will answer this question based on New Economy’s numbers so you can have a rough estimate of the total cost savings you’ll receive from outsourcing your accounting.

Know What You Need

Before you begin to think about the cost of outsourcing your accounting, you need to be clear on the kind of service you need, whether it be an accountant, controller, or CFO.

Each service has a different function, so you want to make sure you’re outsourcing based on your needs.

An accountant is tactical in nature and takes care of the basic financial management that is required for compliance and business success.

A controller is a bit more experienced and typically leads the accounting staff. They’ll have more insight into your business and have the ability to make operational improvements to your financial system.

A CFO is a strategic partner and will work with the CEO to perfect the business model and ensure the business is meeting its financial goals.

For more detail about each role, check out our article on the topic. It’ll help you select which service is the right fit for your business so you can properly outsource your accounting.

Let’s Define the Cost Savings (Sorry for the data and detail, we are number crunchers!)

The cost of hiring a full-time employee can pile up, and this is before you even think about the time and salary.

However, outsourcing your accounting to New Economy offers plenty of cost savings in a few key areas.

Training Investments

We cover the training investments for each team member and make sure they are continuously developing new skills and growing professionally. In fact, we invest between $5k-$10k per employee each year.

IT and Technology

We cover all of the IT and technology investments which is roughly $5k per employee each year.

Fringe Benefits

We cover all of the fringe benefits including payroll taxes, 401k match, and health insurance. To put this into perspective, this means we are investing between $15K-$20k per employee each year based on a $75k salary.

Management Time

We cover all of the management time on each account which can be a bit more challenging to quantify. However, you are now valuing your own time.

So as you can see, New Economy covers anywhere between $25k-$35k in costs that, when you outsource your accounting, you do not have to assume. And keep in mind, these numbers don’t include salary.

Before we Jump into Salary, Consider the Time that You Need

When you take into account the costs above and include a salary of $75k per year, you’re now shelling out anywhere between $100k-$110K for a full-time employee. However, this begs the question, do you really need a full-time employee?

We are learning that many internal accounting hires are pulled into operations or admin work. When this happens, they are being overpaid and under-challenged. And you run the risk of losing them.

To avoid this, you need to understand the true time needs in accounting. This will reduce your investment in this area.

For example, a full-time controller could cost between $80K-$125K, but if you only need a 50% schedule, your cost will reduce dramatically.

Now onto Salary, Keeping in Mind we are Focused on Growing Small Businesses and Startups

Let’s take a look at the typical salaries for hiring full-time:

A new accountant can cost anywhere from $55K-$65K
An experienced accountant can cost anywhere from $65K-$80K
A Controller can cost anywhere from $80K-$125K
A CFO can cost anywhere from $125-$200K

In our experience, most growing small businesses and startups don’t need full-time accounting help.

So the true cost savings of outsourcing your accounting while still obtaining top-tier talent would be:

$25K-$35K on technology, training, and benefits
20%-30% of the salary by leveraging the team member in their unique ability and removing all admin and operational type work

Interested in Outsourcing Your Accounting to New Economy?

At New Economy, we believe outsourcing is a great way to help you gain control of your finances to make smart decisions to build and grow your company.

Our team comes from a great culture where they are nurtured and developed and we are proud of the awesome service they deliver.

Based on the above, you can see that there can be significant cost savings in outsourcing your accounting.

If you are interested in learning more about our service, reach out to us today!

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!

Why Companies Choose New Economy as an Outsourced Accounting, Finance and Tax Partner

March 21, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

New Economy was designed to help entrepreneurs gain control of their finances and make smart decisions to build and grow their business

As an outsourced accounting, finance and tax partner, we do this by making you the hero (think Luke Skywalker), identifying your problems and challenges (think saving the galaxy), and we come in and play the role of guiding you to financial success (think Yoda).

We believe you deserve financial confidence to grow your business and want to be the reason you fall back in love with being an entrepreneur.

Here’s how we will get you there:

You are the Hero

This is all about you. Your dreams. Your business. Your finances. Your success.

Being entrepreneurs ourselves, we understand the ups and downs that you are going through to build your business. We understand how hard it is but we also know you’re up to it as you have plenty of passion, guts, and vision.

And we know, there are plenty of challenges awaiting our Hero. And every great hero needs a guide helping them solve problems and pointing them in the right direction behind the scenes.

Every Hero has a Problem

As an entrepreneur, your issues and problems are abundant and financial issues can be overwhelming at times, especially since you didn’t start your business to manage the books, taxes, or accounting systems and processes.

Some of the problems you may run into are:

You lack the financial visibility to make decisions that drive your business forward.
You are not getting your financials in a timely manner, meaning you lack real-time data and the ability to make quick changes to get your business back on track.
You have inaccurate financials, giving you a misrepresentation of your business. You are struggling to get the right person in the accounting and finance seat to move at your speed and provide timely and accurate financial information to build and grow your business.
You are using processes and technology that aren’t adapting as your business is growing, which is causing inefficiencies and costing you money.
You are lacking strategic business or tax support.

Each of these issues puts your business in a tough position. They inhibit growth and add more work to your plate.

The Vision for Success

Having a great understanding of the problems and challenges facing entrepreneurs puts us in a position to add value and help you achieve your goals.

So imagine the following:

Having a partner that is providing accurate financials on time that you can trust
Having a partner that will help you leverage financial information to make decisions
Having a partner that will help to ensure your financial systems and processes are working efficiently and evolving to meet the needs of the business
Having a strategic partner to help support the growth of the business
Having a strategic partner to ensure you are keeping up with the evolving tax changes

Imagine a world where you don’t have to worry about anything financial, accounting or tax-related and where you can spend your time focused on growing your business.

That’s where New Economy comes in as the guide.

We are the Guide to Success

At New Economy, our passion is to Unleash the full potential of the Entrepreneur.

We have come alongside many Entrepreneurs helping to put their pain points and problems at the center of our focus. This is why we’ve created a team and culture that is thirsting to make an impact and add value.

Our goal is simple: to guide you to get the most out of your business finances so you can do what you love.

In fact, our tagline is: Helping entrepreneurs gain control of their finances and make smart decisions.

We truly believe with our support, your business can achieve the success you’ve envisioned from the beginning.

Here is what a few of our Heros have to say:

Linda Bohmbach – Owner/President of Sales at Home Healthsmith

“We have felt uncertainty and concern about how the business was performing financially. But then we found New Economy! They helped us understand our financials better by providing cash flow projections, a budget, and a projection. These tools have removed some of the fear and uncertainty and helped us with decision-making. But the best is they are entrepreneurs just like us.”

Erica Wennerstrom CFO/ COO at Framework Homeownership

“I first found New Economy in 2016, when I joined a technology startup whose accounting processes and technology stack were lagging and not operating effectively. With their partnership, I was able to modernize our financial operations and count on timely and accurate financials.

I have since worked with New Economy at two other companies, and each time relied on the New Economy team to help me tackle key financial operational challenges, including revamping the Chart of Accounts and financial statements, implementing new systems, and dealing with sales tax liabilities.

Even in the midst of large operational projects, New Economy ensures that I always have a handle on the numbers to make smart decisions and a team I can count on. THANK YOU!”

Su Sanni – CEO at Dollaride

“Dollaride is a growing venture-backed startup. We’ve been focused on growing our business, but needed a partner that could step right in to provide us with financial visibility and own the process. The team at New Economy has helped us to get organized.

Every month, they also provide key financial information that enables us to make smart decisions that build and grow our Company. We enjoy working with New Economy and highly recommend them!”

Want to Learn More About Working with New Economy as an Outsourced Accounting, Finance and Tax Partner?

If you want to gain control of your finances and make smart business decisions, New Economy is the outsourced accounting partner for you.

With our help, you’ll get the most out of your business and fall back in love with being an entrepreneur.

Schedule an appointment with us so we can get an understanding of who you are, where your challenges lie, and how we can help.

Does My Company Need a CFO?

February 22, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

As you know, a CFO can add value to your company. They have the strategic mind to financially engineer plans to raise capital, provide leadership, create and implement systems and processes that will support your business growth.

However, before making the decision to hire a CFO, you’ll likely have plenty of questions:

What exactly do they bring to the table?
Is my business in the right position to make the hire?
How deep do my pockets have to stretch to bring a CFO on board?

To bring some clarification to the decision-making process, we’ve answered some of the top questions for determining if your company needs a CFO.

What Does a CFO Do?

A chief financial officer wears many hats and each comes with valuable benefits for a business.

Oversees All Things Financial

It goes without saying that a strong financial position is a necessity if you hope to have a successful business. Including a CFO in your team makes this possible.

Their primary goal is to understand the ins and outs of your finances. Meaning when it comes to managing cash flow, creating budgets, leaning into financial forecasts, ensuring accurate reporting, and everything in between, a CFO will have it covered.

Strategic Advising

Not only will a CFO have a strong understanding of your finances, but they will also be able to offer experienced and data-backed advice to help your business make the right decisions.

They’ll serve as a planner and map out strategies with your goals in mind. From there, a CFO will implement and track the progress of those strategies to ensure your business sees success.

Apart from the more obvious financial strategies like improving profitability and building cash flow, CFOs offer strategic advising for:

Organizational changes like mergers, acquisitions, and IPOs.
Negotiating vendor contracts to ensure you are getting the best out of your money.
Building relationships outside of our organization but within the financial community like lenders and potential investors.

Building Infrastructure

Everything within your business requires a process. Whether it’s from a production, operational, or financial standpoint, you have (or should have) a system.

One of the roles of a CFO is to create systems and processes that help your finances stay organized and on track. This could include anything from:

Implementing a new payroll software
Creating a new way to track your cash flow
Integrating a new bookkeeping system

The idea behind this work is that your business will be able to run much more smoothly and efficiently with the proper infrastructure in place.

Building and Developing the Team

CFOs serve as the right-hand to upper-level management. They analyze everything from a financial perspective, which can be incredibly useful when building and developing a team.

A CFOs insight can be helpful for determining:

If it is the right time to hire.
Feasible salaries and benefits for employees.
Productivity and efficiency among current employees.

When Does My Business Need a CFO?

Typically, rapid growth plays the largest role in determining if your business is CFO-ready. As you grow, the need for financial assistance and expertise increases.

For example, a growing business often runs into the need for capital. A CFO understands the process of valuing your business, meeting with investors, pitching the deal, and then creating a plan for properly utilizing the money. They provide all of the support you would need to secure funding for growth.

As mentioned, the faster your business grows, the more financial support you will need. Your:

Budgets will have to be more detailed.
Reporting will have to be more accurate and advanced.
Forecasts will have to predict a multitude of different situations.

Every area of your business’ finances will require more attention and expert-level analysis, something only a CFO can offer.

Once new strategies are in place and your finances begin trending in the right direction, your entire team will need to be on board. For your success, it’s essential your team sticks to their budgets, understands their role from a financial standpoint, and reaches their assigned goals. A CFO serves as a financial leader, providing your team with the information they need to understand why they play an intricate role in your business’ success.

What Does a CFO Cost?

When a business owner is weighing the pros and cons of hiring a CFO, cost typically sits front and center. However, there are two routes you can take when it comes to reaping the benefits of a CFO.

Full-Time CFO

A full-time, in-house, CFO spends all of its time building strong finances for your business. As an employee of your company, you’ll be required to pay them a salary with equity and offer additional benefits.

If you choose the full-time CFO route, you’ll be paying anywhere between $300K-$400k a year to receive all of the benefits above.

Part-time/Outsourced CFO

The second option is to hire a part-time/outsourced CFO. They will take time to understand your business and your goals. Even though they are not full-time, they still offer the same services and you will receive the same benefits.

When you work with a part-time/outsourced CFO, your monthly bill will range between $6K-$12K per month. Oftentimes, with this option, you can pick what level of service you’d like, which is why the prices vary.

If you are interested in working with a part-time/outsourced CFO, consider New Economy. We offer lite CFO services which include strategic planning, capital raising, and financial modeling for forecasting and future visibility. Our goal is to help entrepreneurs gain financial clarity and make smart decisions.

Schedule a consultation with us today to learn how we can help you get the most out of your business!

Sources of Capital and How to Evaluate Them

December 2, 2021/in Finance, Startup/by Jeff Allain

Capital is used to fund the day-to-day operations as well as the long-term growth of your company. You must obtain it and use it wisely to create a strong, healthy business.

In most companies, the capital structure is a combination of various sources of capital. It’s important you understand each source and how it will affect your business goals and long-term success. With this information, you will be making smarter decisions for your business.

Sources of Capital

Let’s take a closer look at several types of capital and how they work.

Debt Capital

Debt capital refers to any type of money that is borrowed and must be repaid.

There are a variety of ways you can secure debt capital including:

Credit cards
- Business credit cards function similarly to personal credit cards. You’re given a credit line and are expected to repay the credit within a given time period, if you do not repay in time, you will begin collecting interest.
- Credit cards will best serve your business if you need a smaller amount of financing or don’t qualify for loans.
Bank loans
- Borrowing money through a bank lender isn’t always easy for new businesses. Banks can be leery of lending to businesses lacking proof of financial stability. However, this is one of the more common ways to secure debt capital. Usually, interest rates are low and the money can be used on anything.
- Bank loans are good for short or long-term debt, depending on the size of the loan and how quickly you plan to pay it back.
Government loans
- The Small Business Association (and some other programs) offers loans and is the most popular way for entrepreneurs to acquire debt capital. However, you have to explain why you need the capital and show you are able to repay the loan.
- Again, depending on the size of the loan and how quickly you plan to pay it back, government loans may be a good option.

Like most forms of debt, debt capital requires an agreement to pay interest. This can be a drawback to using debt capital because if you aren’t careful, you could create a much bigger financial burden for your business. Additionally, in the unfortunate event your business fails, you are still responsible for paying what is owed.

On the other hand, leveraging debt capital comes with its advantage. Since your debt is finite you, or your lender, can calculate exactly how much is needed for repayment each month. As long as you don’t miss a payment, and once the debt and interest are fully paid, the burden is no longer on your plate.

Another advantage to using this type of capital is that it does not dilute the owner’s interest in the company like other forms, such as equity capital which will be discussed in the next section. The debt is yours, meaning you pay for it with your revenue. You don’t have to worry about paying out your revenue to equity owners. Your money stays within your business.

Equity Capital

Equity capital is money from invested shareholders. As mentioned in the previous section, using equity as a form of capital dilutes the owner’s interest in the business because each shareholder is considered part-owner, even if it is just a small fraction of the company.

Here are the two most common forms:

Common stock
- Common stock is typically sold to shareholders to raise capital. Shareholders with common get some say in certain business decisions and could potentially receive random dividends.
Preferred stock
- Preferred stock owners have no voting rights but businesses usually pay a fixed dividend to preferred shareholders before they pay common shareholders. However, businesses are not required to pay anything.

Unlike debt capital, equity capital does not need to be repaid, however, businesses will usually provide some return on the investment made by shareholders based on market performance. Equity is most useful when your company’s eyes are set on high levels of growth and you are looking to scale the company quickly.

Like any source of capital, leveraging equity comes with its advantages.

You and your business are not required to repay investors. Resulting in less risk because there isn’t a required payment due, even if your business fails.
Investors could end up being a significant benefit to your business, depending on the role they want to play.
- Types of investors:
  - Angel investors – Angel investors usually are closely connected to the business, offer less than $500,000 as an investment, and typically stay out of management decisions.
  - Venture capitalists – Venture capitalists are picky investors who generally want a say in business decisions.
  - Accelerators – Accelerators offer mentorships, investors, and other support to new businesses. They will play a heavy role in the management of your business.

While you may find benefits from equity capital, you may be put off by some of its disadvantages.

Leveraging equity requires a lot of your time.
- You’ll need to provide your shareholders with a detailed look into your business plan and continually update them on your progress.
There’s a chance you’ll lose control of your business.
- The more involved your shareholders are, the more say they will want in business decisions.

Crowdfunding

Crowdfunding is a newer, growing type of capital that is accessible to companies. It is the use of small amounts of funding from a large number of people to reach the desired goal. Instead of turning to one lender, the funds come from many individuals.

Social media has aided in the uprising of crowdfunding because large amounts of people are easily accessible. Investors can come from anywhere to support your business.

Crowdfunding comes with its benefits:

You won’t have to give up equity in your company.
- Multiple investors are giving your business money simply because they support the idea. They expect nothing in return.
You can test the market.
- Investors are quite literally buying into your business. A high level of support in crowdfunding can often mean a high level of support within your market.

However, a disadvantage to crowdfunding is that it can carry a negative reputation when it comes to public opinion because it is sometimes seen as a last resort to funding.

If your company does not have access to alternative forms of capital, crowdfunding may be an option.

Capital Grants

Capital grants are an award of money given to the company to achieve a specific goal or to incentivize performance. These are funds that do not have to be repaid but may come with some conditions.

A range of grant options are available and each is a bit different in terms of applying for and obtaining them. Most often, there is an application process for those that meet basic requirements. Companies must meet the specific eligibility conditions to apply. Usually, this means you are a part of a specific industry and your business has shown its ability to grow.

If you have a specific need, this type of funding may be your best option, considering you often have to prove how you are using the money to meet that need.

Grants create a strong influx of funding and are beneficial because there are – usually – no costs associated with them. However, it can be difficult to track the success of grants and there is always the potential to lose a grant, which could put your business at risk financially.

Need Help Determining Which Source of Capital is Right for You?

Selecting which source of capital is right for your business can be difficult. As we’ve discussed, there are plenty of factors at play, and turning to the wrong source could result in financial distress.

This is why we recommend working with a trusted accounting partner, like New Economy. We will learn the ins and outs of your finances and work with you to determine the best source of capital for your business, taking the work off your plate, and ensuring financial success.

New Economy is ready to answer your questions and help you implement best practices for using capital to help you reach your business goals.

Let us be the partner you need! Contact New Economy, to learn more! It

Top 5 Reasons to Engage a Part Time Controller or Accountant

November 16, 2021/in Finance, Startup/by Jeff Allain

If we had to make an educated guess, we’d say you likely have a lot of tasks on your plate, and your accounting probably sits low on your “love list”. How did we do?

Accounting is time-consuming, tedious, and can be complicated. It’s not on many people’s list of favorite things. It’s certainly not where most entrepreneurs prefer to dedicate their time when priorities like customer relationships, operations, and logistics demand attention.

Still, whether to outsource accounting is a decision not to be taken lightly, so let’s look at the 5 top reasons small business owners like you are choosing to outsource accounting.

Top 5 Reasons to Engage a Part Time Controller or Accountant

1. Your Business is Growing

You can handle your finances now. You’re small scale and just need a few spreadsheets. It’s fairly easy to keep track of expenses because they’re predictable, and you don’t have that many. But something’s changing as you grow. It’s getting more challenging to keep everything straight or find the time to sit down with receipts and a calculator.

As you grow, you make more money, but you also face higher demands. Your payroll is growing too, and an increasing number of employees, vendors, and customers are counting on you to make smart business decisions and keep this ship moving in the right direction.

All of this means you have more to manage, but you can’t afford to let your accounting fall behind because you need those up-to-date figures to make informed decisions.

Outsourced accountants keep track of your numbers and offer sound advice, so you understand the next steps in growth.

2. You Need a Stronger Business Strategy

66% of small businesses say they have trouble with finances. They say their number one issue is maximizing cash flow.

86% of small businesses would struggle to maintain current operations if they lost just two months of revenue.

This house of cards business model leads to many small business failures, but when you strengthen your business strategy, you can improve cash flow and weather shifting markets, economics, and natural disasters. You can take calculated risks to grow your company.

Business strategies are key to a successful business. When you don’t have them, you make decisions on a whim or limited information at great risk. As you grow, so should your business strategy. If a business isn’t growing and looking toward the future, it will fall behind its competitors.

Financial statements may look like a bunch of numbers to the untrained eye. But to an accountant, they tell a story of where your business has been, how it’s doing, where it’s going, and what you do to influence that trajectory.

When you understand the numbers, you can set more meaningful goals so you have a foundation to refer back to and can push your company to its full potential.

3. Your Systems and Processes Will Improve

With a strong business strategy will come better systems and processes. A closer look at your numbers can help you spot overspending, waste, poor productivity, quality issues, and even careless errors (or fraud) that are costing you money.

Accountants will work with you to create systems that work best for your business, such as:

Customized reporting
Tracking
Payroll
Industry and financial compliance
Timely reconciliations
Accounts payable
Avoiding tax or other penalties
Accounting automation
Pricing analysis and strategies
Aligning business goals with financials to streamline and grow
Budgets vs. Actual

Better systems lead to a more financially healthy business.

4. You’ll Save Time and Money

Accounting will be their job, not yours. That’s not to say you won’t look at or engage with your financials. But accounting professionals can analyze, summarize, and deliver information to you in the most useful form.

Spend more time doing what you do best, running your business. And the best part is you don’t have to pay for an in-house accountant. Outsourcing is typically cheaper. You do not have to pay for someone full-time or manage benefits. You only pay for what you need.

How does outsourcing accounting save you time? It allows you to:

Focus on other areas of business so they perform better with fewer errors and fires to put out
Work with someone who knows their industry intimately and gains the same in-depth knowledge of your business to advise you, for swift, agile, and confident decision-making
Reduce risks as you experience fewer “wrong turns” that end up wasting your time and money
Speed up revenue generation with the right people, technology, business, goals, and strategies

5. You’ll Have a Trusted Financial Partner

Their only job is to manage your finances. They’re not being pulled in a million directions, putting out fires, or trying to juggle several priorities. This leads to accuracy and efficiency. You can trust there will be no costly mistakes. Accounting professionals have safeguards in place on top of learning to check, double-check, reconcile, and re-check everything.

If you have questions, they are there with answers, and their in-depth knowledge of your financials makes them the ideal person with whom to discuss important business decisions and how to adapt in competitive industries. Gain control of your business and its direction by working with a trusted accounting partner.

Would you like to learn more about the value that outsourcing accounting delivers to growing businesses? Turn to New Economy. We will manage your finances to run your business. Learn more about turn-key accounting services for entrepreneurs.

How to Manage and Proactively Build Cash Flow in Your Business

October 29, 2021/in Finance, Startup/by Jeff Allain

A strong cash flow is a deciding factor between a successful business and an unsuccessful one. It indicates the health of your business. This is why it’s so important to manage cash flow properly and take the necessary steps to build it up.

Entrepreneurs who want to develop a cash flow system for best practices should follow these steps. From improving accounts receivable to better managing vendor contracts and product pricing, there are so many ways you should and could be building cash flow.

Benefit from gains in revenue into the new year now with these tips for managing cash flow.

Track Everything and Utilize Forecasts

Keeping adequate records of revenue and expenses is one of the most important steps in managing cash flow. If tracking is off, your overall cash flow will be off. Good tracking also ties into creating a forecast. Cash flow forecasts show you where you expected your finances to be and can play a huge role in goal setting.

Goals are a necessary means of making sure your business is striving and achieving in areas that will grow your company by leaps and bounds.

Use forecasts as a benchmark for reaching your cash flow goals. They will ensure you are on the right track and implementing the correct tasks and processes. Include forecast data and results after the fact in your financial reports. This will help your business keep on pace with any necessary changes that need to be made.

Keep a Close Watch on Your Accounts Receivable

Accounts receivable have a huge impact on your cash flow numbers. Keep accounts receivable prevalent so your cash flow is primed for smart financial growth. Do this by following and aiming to improve three simple processes you are doing anyway for your business:

Collect payments on time
Track exactly how much you are owed
Know what is past due

Improving these areas can be much easier if you automate the process. You can also implement the assistance of an online accounting firm or CFO services from a third-party associate to give your accounts receivable processes an edge.

Update Vendor and Partner Contracts

Vendor and partner contracts can sneakily decrease your cash flow. They may go up in price over time, or you could be overpaying. Either way, it’s important to know what is happening between vendors and their services. Keep track of when contracts end or prices change. That way you can find a cheaper route that improves cash flow.

Ask for an updated price list on a monthly basis or whenever pricing updates are made by each of your vendors. You should also take advantage of any sales or price reductions on similar products and services when they arise. By looking over updated pricing sheets your vendors provide, you will have the information you need for smart purchasing decisions.

Vendors may also have a customer rewards program you can sign up for to save even more money. Watch out for any subscriptions or reoccurring product purchases, though. These may loop you into fuel price surcharges or other unexpected market-related expenses. You want to avoid making the mistake of signing lengthy contracts for items that you may not need in the near future as well. Be cautious of those vendor deals that look too good to be true, and you’ll stay on course with spending in this area.

Run a Pricing Analysis

If your cash flow is suffering, it may be because you aren’t charging the right price. Maybe you’re charging too much and customers aren’t making the purchase. Maybe you aren’t charging enough and your expenses are outweighing your revenues. A pricing analysis will help you set the right price for your business and, in turn, boost cash flow.

Tools and software are essential to this part of the process. You are able to increase cash flow through the smart implementation of free tools that will greatly benefit your business. Figure out where these tools can best serve your company with pricing analyses before you make any purchases. This will also make you savvier within the retail market for products that your company needs to use.

Work With an Experienced Accounting Partner

Cash flow problems are not something to let slip through the cracks. You need to manage cash flow issues properly by constantly working to find ways to correct them for your business. When you work with an experienced accounting partner, like New Economy, you can be sure everything is being done to move your cash flow in the right direction.

Right now, you can also take advantage of our free cash flow projection tool. Determine what else you can do on your own, for free, with our five pro tips for cash flow stimulation and confidence-boosting.

We also want to hear from you directly. Schedule an appointment with us today to learn how we can help you grow your business.

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