Beginning Balance

It a fussy word, and almost sounds archaic nowadays, like "balancing your checkbook." But reconciliation is critical to ensuring that your bank account actually lines up with the jobs you assigned to your dollars in Rule One!   Basically, reconciliation is a process in which you compare your actual bank balance to your balance in YNAB. This serves two purposes. First, it ensures that you are entering expenses in YNAB correctly; mistakes happen, direct import occasionally throws an error, or you manually enter a transaction twice by mistake. By reconciling your accounts regularly, you can catch these errors and discrepancies quickly. If you reconcile infrequently, it can be very frustrating and time-consuming to track down the source of the error.   Secondly, reconciling ensures that your YNAB account matches reality. In order to give your dollars a job and assign them to handle future expenses, you have to know that the dollars are actually there in your bank account. It's the reality check. Reconciliation is a simple process, but if you neglect it for long periods of time you can end up with very different balances in your YNAB account (or whichever budgeting system you use) and your bank accounts. And at the end of the day, what really matters is that you have the cash in your bank account!   Mark Butler CFO https://markbutler.com   You Need a Budget https://www.youneedabudget.com  

Jesse and Mark wrap up their review of the four YNAB rules as applied to business with Rule Four, age your money. This rule is a consequence of following the first three rules, and it refers to the fact that once you have embraced the rules you will find yourself paying for this month's expenses with last month's money. Maybe even money from two months ago. That's called aging your money, and it's crucial for being strategic in business.   Mark Butler CFO https://markbutler.com   You Need a Budget https://www.youneedabudget.com

Mark and Jesse continue analyzing the problems of small business finance through the lens of You Need a Budget's "Four Rules." Today they explain that Rule Three -- roll with the punches -- is a call to actively, and continually, budget for the business.   The budget is not a static document that gets set once a month, or once a quarter, or yearly, then measured against. Budgeting that way is a good way to feel continual frustration at not meeting numbers, because all budgeting involves guessing at what you will spend. And guesses are usually wrong!   Rule Three encourages business owners to roll with the punches instead. You do this by adjusting your budget as you go, throughout the year, using the categories you've established as your guideposts. Did you overspend on travel and entertainment last month because an unexpected opportunity to pitch a product to an out of town client? That's ok! You simply move money from another category to cover the overage in travel and entertainment. It's not a budgeting failure to have overspent in that category; in fact it may be a very wise business move. In traditional historical budgeting methods, that overage would be a big red number on a spreadsheet. In YNAB, it's just called rolling with the punches.   Mark Butler CFO https://markbutler.com   You Need a Budget https://www.youneedabudget.com

Mark and Jesse expand on Rule Two, or "embracing your true expenses." When Mark onboard a new client, he helps them import six to twelve months of prior expenses into YNAB for analysis. With these numbers, Mark and the client can get an idea of the true expenses of the business, including expenses that occur infrequently, whether it's annual insurance premiums or unexpected costs related to operations. Often during this process the business owner will point out how the expenses during the historical period were a fluke and not representative of a normal operating cycle. But the reality is, unexpected expenses are a normal part of business, and what we perceive as flukes are really just unexpected expenses that we can learn from, and prepare for, in the future.   Some entrepreneurs feel that saving up cash today for expenses that will happen in the future hamstrings them by limiting their opportunities for growth or competing with peers in their industry. But as Mark pointed out in the discussions about Rule One, having cash on hand ultimately gives business owners options.   If a business owner saves a pile of cash for an expense that never occurs, they can simply decide to reallocate that cash to do other jobs. The reverse scenario is more dire. Not having enough cash to handle an unplanned expense, or an irregular expense that hasn't been saved for, usually involves taking out a loan of some kind to pay for it. That's going backwards!

Mark and Jesse discuss how YNAB's Rule Two can help business owners sleep better at night, by setting aside money for their known (and some unknown) future expenses like taxes, insurance, future hiring, and more. No more sweating during tax season wondering what your tax bill will be and how you are going to pay for!   Mark Butler -- the Virtual CFO https://markbutler.com   You Need a Budget https://www.youneedabudget.com  

Mark and Jesse conclude their discussion of Rule One -- Give Every Dollar a Job -- for businesses by exploring how it can help anxious owners gain control over their emotions around money, cash flow, and what to do with the company's excess cash.   Mark Butler CFO https://markbutler.com   You Need a Budget https://www.youneedabudget.com  

Mark and Jesse continue their deep dive into YNAB's Rule One -- give every dollar a job -- as it applies to businesses. Jesse says "show me your outflows, and I'll show you your strategy." The things a business spends it's money on, is a proxy for the businesses strategy, just like the things individuals spend money on is a reflection of their values.   Mark takes this idea a few steps further, insisting that all of a business' cash is wrapped up in it's strategy, or lack thereof. Inflows, outflows, cash in the bank, debt... they all play a role in determining the strategy and direction of the business.

Mark and Jesse discuss Rule One -- give every dollar a job -- for businesses, specifically around the concept of scarcity. There are only so many dollars available at any one time, and often not enough to do everything an entrepreneur wants to do. Mark argues that this scarcity is actually the entrepreneur's best friend, as it drives businesses to get creative about reaching their goals with the resources they have, rather than put themselves in financially precarious positions by borrowing money (resources they don't have).   So instead of thinking of "scarcity" as a bad word, start thinking about it as the key to unlocking your creative potential.    

Jesse Mecham, founder of software budgeting service You Need a Budget (YNAB), and Mark Butler, a virtual CFO who helps a businesses of all sizes manage their finances, join together to talk about the money issues many small businesses face, and strategies for addressing them. Today, they apply YNAB's four rules of budgeting to the small business, starting with Rule #1: Give Every Dollar a Job.   By giving every dollar a job, businesses can not only create reserves for unforeseen expenses and avoid cash crunches in difficult times, they can also plan more effectively for growth. Without a clear job for the dollars in your business, it's easy for business owners to fall into the trap of never thinking they have enough cash in reserve. Whether it's hiring a new employee, buying new equipment, or making some other large capital expenditure, many businesses get frozen in the mindset of thinking they need just a little more margin of safety in their reserves before making the next growth move. By giving your dollars specific jobs, as Mark explains, it becomes much clearer when to execute growth plans.   Look forward to more Beginning Balance shows every Friday!

Jesse Mecham and Mark Butler are launching a show all about small business finance. They will help you solve your cash flow problems, budget effectively, and increase your profits.