I’ve been a CFO for 5 years.

I’ve also managed finances for 70+ businesses as well as my own.

This week, I’ll be sharing exactly how I do it, in just 6 steps.

Let’s get into it.

Step 1: Develop a Financial Strategy

The first step I take with new clients is defining a clear financial strategy.

This overarching strategy then becomes the filter through which all opportunities are evaluated, and each day-to-day decision is made.

In the SMB world, business finance and personal finance are one and the same. So, the best way to come up with a coherent financial strategy for your business is to start by outlining your personal financial goals and creating a roadmap for reaching them.

From there, you’ll have a much better idea of how your business fits into your broader financial picture. This exercise also allows owners to really see their businesses as powerful tools to live the lives that they’ve always wanted.

For example, if big distributions today aren’t the priority, then you can afford to invest heavily in growth. On the flip side, you may want to pay most of your attention to immediate cost savings and operational efficiency if your goal is to make the most money today or to gradually let the business run itself.

Step 2: Create a Budget

Regardless of the size of your business or how much cash is sitting in the account, every SMB needs an explicit plan for its money.

It’s not enough just to budget for your expenses. While knowing what’s coming out of the account, when, and for what is critical, it’s only half the battle. Your budget should also outline your income sources in the same amount of detail. Doing so can help you identify emergent cash flow issues as well as potential shortfalls.

With your surpluses, you can move on to create your savings and investments budget. After that initial draft, you should keep going back and forth between each section of your budget until you arrive at a series of decisions that you not only can live with, but that also maximize progress toward your personal financial goals.

Even if you’re consistently making more than you spend, creating and tracking to a budget will help you cut waste and save a tremendous amount of time. Truly, you cannot afford to skip this step.

Step 3: Monitor Cash Flow

I’ve said it before, and I’ll say it again: poor cash flow management is the leading cause of business failure. At the same time, I’ve seen far too many SMBs rely on bank balance accounting to stay on top of it.

I often get asked how to manage cash flow so that it doesn’t become an issue.

If you regularly review your income and expenses and then track your cash until you can articulate exactly where it’s going and when then you’ve done 90% of it.

From there, you’ll want to match the amount and timing of your inflows and outflows as closely as possible so that you have just enough cash on hand when you need it, as well as a small amount of buffer. Note that this working buffer is distinct from setting up an emergency fund, which will be discussed later.

Taking the time to match your inflows and outflows does two things for you. First, it ensures that you meet your obligations without having to take on unnecessary debt to do so. Second, it allows you to proactively pull excess funds from the account and put them to more productive use—whether that’s reinvestment or personal distributions.

Step 4: Analyze Financial Data

Good CFOs rely on clean data to make informed decisions. As an owner, your approach should be just as data-driven.

This is not to say that you shouldn’t trust your gut. As an owner, you know your business better than anyone. But gut-checking your decisions against the cold hard data is non-negotiable if you want to work smarter, not harder.

The simplest way to do this in practice is to review your inflows and outflows weekly, get your books in order if they aren’t already, and set a monthly review meeting where you and your team review the core statements in detail, discuss performance to budget, rectify any line item with more than a 5% variance to plan, and assign action items that will move the business toward meeting or exceeding its annual objectives.

Simply put, your goal here is to look for patterns and any areas for improvement.

Note that monthly reviews are the minimum frequency that I recommend for studying your statements. Personally, I do it at least once a week. However, not everyone wants to spend that amount of time looking through transactions and that’s okay. Doing it monthly, in that case, will give your business the most benefit for the least amount of time.

Step 5: Build an Emergency Fund

This step applies to your personal finances as well as those of your business.

For both, you’ll want to save 3-6 months—or more, depending on your risk tolerance—of living and operating expenses to have a safety net accessible in case of an emergency.

De-risking your personal and business finances at the same time keeps you from making suboptimal business decisions to cover your lifestyle and vice versa.

While your business should be used as a tool to further your personal financial goals, I generally advise against comingling.

In other words, your personal financial house should be so much in order that you’re free to make optimal business decisions. At the same time, your business finances should be managed so that you’re not forced to max out to personally fund a tanking venture.

Step 6: Invest

A CFO maximizes cash flow and trims fat in the present so that freed up capital can be invested for the future. Without this step, the previous 5 would be taken in vain.

On the personal side, this means familiarizing yourself with retirement accounts, stocks, bonds, real estate, and other investment vehicles. The ideal split will vary from owner to owner, but you need to start investing if you haven’t already. If you’re not sure where to start or don’t have the time to manage a portfolio, working with an advisor is always an option. Just be choosy when vetting them.

On the business side, you aren’t just limited to plowing money back into the business when the marginal benefit to doing so would be limited. Instead, you can maintain a separate investment account for the business, invest in or partner with other SMBs, or look into owning real estate. The key here is to make investments that make sense for the business and won’t be a separate job in and of themselves to manage.

If you need help taking these steps for your business or have any questions, feel free to reach out.

As always, I’m happy to help.

Putting It All Together

Here are your top takeaways from this week’s post.

1. You can run your finances like a CFO in 6 steps. First, develop a financial strategy. Second, create a budget. Third, monitor cash flow. Fourth, analyze financial data. Fifth, build and emergency fund. Sixth and finally, invest.

2. When building your financial strategy, start with your personal financial goals. Your business is a powerful tool for achieving the lifestyle you want. From there, work backwards to find a complementary approach for both your business and personal finances.

3. Your budget should include income as well as expenses. Study it in depth until you’re able to match the amount and timing of your inflows and outflows.

4. Make even your most mundane decisions data-driven. Trust your gut but verify it against the reporting. Then, use your data to identify patterns, course correct early, and double down on what’s working.

5. Keep at least a 3–6-month emergency fund for yourself as well as your business. Keeping both sets of obligations covered in case of the unexpected will keep you from having to bail out one or the other.

6. Take all the cash freed up from the previous steps and invest for both your personal future and that of the business. Keep in mind that growing the business directly isn’t your only option to invest on the SMB side.

Hungry for More?

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3. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor