Originally published on Inc Magazine’s Process Playbook column by Chris Ronzio
Whether you’re raising money or self-funding your future, these simple habits will help to make life easier.
In 19 years as an entrepreneur, I’ve yet to have investors.
But, I’ve been a casual investor. I’ve bought equity, and I’ve earned sweat equity. I’ve been a minority partner and a majority partner. And recently, I’ve been hanging around more well-funded startups and watching their rockets prepare for liftoff.
Through these experiences, I’ve built some habits that my newly funded friends are just getting used to and I’ve realized that you don’t need to have investors to treat your business like the investment that it is.
So, whether you plan to take funding or now, here are five things you should do ASAP.
1. Understand your personal compensation — all of it.
As a small business owner, you’ve probably been trained to run every personal expense that you (legally) can through the business. But, what saves you a few dollars on deductions can actually become quite the headache if you aren’t tracking it right.
Add up your salary, distributions, and everything you’re charging on a company card that really supports you more than the business. This includes date nights, gym memberships, cell phones, car payments — all of it.
You should always know the true expenses and profit margins of your business, and not just the ones that are burdened with your expensive lifestyle. Then, if you decide to bring on investors or sell the business, removing these expenses can drive up the valuation on your company.
2. Start keeping a weekly scorecard.
Investors will want to understand the metrics of your business. But, a snapshot of those metrics today is much less impressive than a regular history of statistics.
I keep a simple weekly scorecard with my team on Google Sheets. We track things like weekly ad spend, traffic to our website, trial sign-ups and cost per lead. As the business evolves, these weekly metrics help us measure our success.
In your business, metrics tell a story about the results that your actions created. The earlier you start documenting that story, the more confidence your investors will have.
3. Review your monthly financials with at least one other person.
First, and this almost goes without saying, you should be running monthly financial statements — at minimum, a Profit & Loss statement.
If this sounds foreign to you, QuickBooks and Xero make it easy to do it yourself, or you can use a service like Bench to outsource the work.
Schedule monthly sessions to review your numbers with someone else — a bookkeeper, mentor, advisor, business coach or key employee — to evaluate your progress and challenge your thinking. Get in the habit of explaining what happened each month, and how you’re course correcting as needed. Both skills will be important if you decide to involve an investor.
4. Run full-day quarterly and annual planning sessions.
Strategic planning sessions aren’t just for big companies. Even if you’re a company of one, schedule a full day outside of the office four times per year to think big picture.
Already have partners or investors? Putting planning days on the calendar is a great way to batch your updates into an expected timeline to avoid impromptu strategic calls.
If you’re alone at the helm, set time every three months to set new quarterly goals and review your annual goals. Then, take the time to write them down and communicate them to your employees. Investors would expect these updates, so you should expect no less of yourself.
5. Make one and five year projections for your business.
I used to joke that no entrepreneur could fathom what they would be doing in five years — we’re too addicted to shiny objects. But, we’re also driven to hit the crazy goals that we set.
When you take the time to imagine what your company will be doing in five years, you give yourself permission to think bigger than what’s possible with your current resources.
Start making one and five year projections for your business, and forecast some simple metrics. How many customers will you have? How many locations will you open? How many employees will work for you? What will your business do in revenue? How much will you personally take home?
Any investor will ask to see these projections, so build a track record of setting goals and trending toward them.
For most of us, our businesses are our biggest investments. They take up all of the time we have in hopes of generating all of the money we’ll need.
Whether you have partners today or not, remember that you are the company’s largest investor. Build these habits first for you, and if you decide to take on investment in the future, it will be much easier.