Tools for tracking profit and loss
Keeping track of your finances as a creator can be daunting, especially with a never-ending list of tools, apps, and software but here are some tips on what you need to manage your money as a creator!
Managing your money as a creator can be a challenge, but we have some tips for you to make sure you get your finances in order.
This video is intended as knowledge-sharing, not tax, financial, or legal advice. Always consult with tax/financial/legal professionals to determine what's best for your business.
Transcript:
Belva Anakwenze:
As a business manager, I get a lot of questions about what creators could be doing differently with their money. How much should I be saving? Do I have money to hire help? Can I buy a private jet? Whatever the question is, my response is always the same. Do you know how much money came into your business and how that money was used? The best way to start making sound financial decisions is to have and to use a profit and loss report.
I'm Belva Anakwenze and I work with creators every day helping them with financial and business decisions including understanding financial reports.
And remember y'all this video is for informational purposes only. Everyone's financial situation is different. So make sure you consult with legal and financial professionals so that you've got the full picture for your business. Okay, enough disclaimers, let's jump in.
One of the most integral parts of financial reports is called an income statement or a profit and loss. This document lists business income in categories. Next, it subtracts your business expenses in categories. And then it finally shows you your business profit or loss at the bottom. So your business' profit or loss, is truly just a math equation. Income minus expenses equals your profit. And hopefully not your loss.
Think of it this way, on one hand, you have all of your income. That includes your ad revenue from YouTube, your merch, consulting gigs, and any revenue that comes into your business that counts. On the other hand, you've got your expenses, business travel, shipping, marketing expenses, and independent contractors, you're gonna include that in the expense category.
“What's the best way to track your cash flow? My answer to this is, the best system is the one you will actually use.”
You don't have that information yet? That's fine. Go back through your credit cards and bank statements for the last two months, and start gathering the information that you need. If your revenue amounts to more than your expenses you've got a net profit, money will begin pooling in your accounts. On the flip side, if your expenses are more than your revenue you have a net loss, your money will begin to deplete, and if you're not careful, you could find yourself in debt, easy enough right?
Now I don't want to give you the impression that you need to have a profit from day one, or that having a loss is a bad thing. It may be okay to have a loss in the short term if you're helping to achieve your goals. But it's important to know what you've got coming in, what's going out, and how much you should expect to have left over.
So what should you do with this information? Think about the goals you have for your business. Those might be some of the questions I mentioned earlier: are you looking to bring on new employees? Are you trying to save more? Do you wanna invest? Now, the other question is will your goals cost more than your available cash? If it is, then this is the perfect moment to reassess. See if you can reduce some of your expenses, you know that cash going out of your business. Maybe there's a software subscription, you no longer need or a costly contract that you should renegotiate. Or you can try to focus on bringing on more income, the money coming into your business. See what income streams are doing the most for you and consider doubling down on them. Or maybe there's an entirely new income stream you can explore like incorporating a membership platform into your business.
So what's the best way to track your cash flow? My answer to this is, the best system is the one you will actually use. I am personally a big fan of leveraging technology. There are a lot of great web-based platforms and apps that are designed to help do the heavy lifting for you. With most of these apps, you'll give them permission to access your business bank accounts and your credit cards and they'll import the transactions into the software. Then you can go in and categorize the transactions in meaningful ways that work for you and your business.
By far, one of my favorites is QuickBooks online. It's a robust subscription-based software, that can be great if you have a basic understanding of this stuff. Some other options: there's Tiller HQ for Excel in Google Sheets, Super Users, Planguru, Expensify, and FreshBooks. And honestly, the list is endless.
You don't even need to go high-tech, if paper and pencil or a spreadsheet work best for you, go for it. 'Cause remember I said the one that works best is the one you will use. Don't know where to begin, I've linked a template below to help you get started. Of course, if this seems like a lot, or your business is complex, a financial advisor can help you create a cash flow tracking plan, that is tailored to your specific needs.
How do you track your business's finances? Tell us down in the comments below, and make sure to like this video and subscribe to this channel for more helpful financial tips. As always, go be creative with your business.