Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Octavia Conner, @SayYesToProfits. Octavia is the #1 Virtual CFO and Strategic Business Advisor to 6 and 7-figure businesses. She is a certified QuickBooks Pro-Advisor, best-selling author, and public speaker. Her mission is to prevent the struggle of entrepreneurship and help businesses earn their first million-dollars sooner than they think. Octavia strategically combines financial management and accountability with unique business growth strategies that enable her clients to say yes to profits and say no to taxes. For more information: www.sayyestoprofits.com
SmallBizLady: How did your mission of helping businesses earn their first or next million dollars occur?
Octavia Conner: It started with my broke-busted-disgusted-breakthrough journey. I was making six-figures in corporate America, and I figured in no time I would be earning the same as a business owner. Unfortunately, I ended up with a -$152 in my account and one month away from foreclosure. I had many sleepless nights worrying about my cash flow and how I was going to support my kids. But I started over. I returned to corporate America part-time while educating myself on how to think and operate as a profitable CEO. Entrepreneurs often start their business with an employee mindset instead of a CEO mindset, and that was the problem I had to overcome first.
SmallBizLady: What is the key thing you need to think about as a business owner?
Octavia Conner: As a business owner, you must build and maintain a solid financial foundation in order to have more money and more profits.
SmallBizLady: What three financial challenges do you believe stifle the growth of small businesses?
Octavia Conner: The three financial challenges that are stifling the growth of small businesses are the lack of a proper money management system, experiencing significant cash flow shortages, and paying higher-than-normal tax bills.
SmallBizLady: What is the first step that will enable businesses to say yes to profits and say no to taxes?
Octavia Conner: The first step is for the business owner to shift to a profitable CEO mindset. A profitable CEO understands that financial discipline is critical for them to win in business.
SmallBizLady: How do businesses begin to make the shift to being a profitable CEO?
Octavia Conner: They develop a strategic financial plan that enables them to increase the three money levels of business AND reduce their tax liabilities simultaneously.
SmallBizLady: What are the three money levels of business, and how do companies improve them?
Octavia Conner: The three money levels are revenue, cash flow, and profits. To improve them simultaneously, the business must begin by gaining financial clarity and control, while strategically pricing, spending, and saving money.
SmallBizLady: When maintaining a financial management system, what is most important?
Octavia Conner: One of the most important tasks is for businesses to get clear on their cash flow cycle and the monthly working capital needed to maintain positive cash flow and a profitable bottom line at all times.
SmallBizLady: How do businesses begin to gain financial clarity and control?
Octavia Conner: The first step is to identify the ‘what’ and ‘when’ of their cash inflows and outflows. Next, they need to strategically increase their cash inflow while decreasing their cash outflow by eliminating all money leaks.
SmallBizLady: What are money leaks?
Octavia Conner: Money leaks are unnecessary cash outflows that are not yielding an ROI and are keeping businesses financially strapped and stressed. By eliminating money, leaks my clients have recovered over 60% of their cash flow each month consecutively.
SmallBizLady: What do small businesses need to do to shift their financial position immediately?
Octavia Conner: They need to use financial discipline by developing a bottom-up budget and cash flow forecast. A bottom-up budget identifies the underlying cost of each segment of an organization and its impact on the entire company. A cash flow forecast identifies all actual cash inflows and outflows week-by-week or month-by-month. Using these tools together will help the company not only earn more money but keep more money in the business.
SmallBizLady: To reduce tax liabilities, what are the top two things a CEO should do?
Octavia Conner: The first strategy is to examine their tax filing structure to ensure that, no matter how much profit they generate, they will pay little to nothing in taxes. The second is to strategically spend money on those items that will reduce their taxable income but also benefit them long-term, such as a retirement or SEP plan.
SmallBizLady: What is the benefit of a company changing its tax structure?
Octavia Conner: Most businesses start as an LLC, and, for a while, that is okay. Before the company crosses the six-figure mark, it is wise to change to an LLC filing as an S-Corporation. By filing as an S-Corp., there are no taxes on the corporation. The profit is allocated to the owner(s), and the owner(s) must pay themselves a “reasonable” salary as a W2 employee. Under this filing status, they have no self-employment taxes to pay, no matter how much profit the corporation generates.
SmallBizLady: What are the benefits of contributing to a retirement plan for business owners?
Octavia Conner: By contributing to a retirement plan, business owners reduce their taxable income. As of today, you can contribute up to $55,000 per year in pre-tax dollars. If you are over 50, the contribution limits are much higher. The money for this contribution will be included in the company’s expenses.
SmallBizLady: What is the most immediate strategy a business owner should do right now to shift the financial trajectory of their business?
Octavia Conner: They should establish and maintain an accurate, reliable, and timely financial management system. As the CEO, they should be aware of their current and future financial position at all times. I recommend they begin to have Financial Fridays. This is when they spend the day gaining a clear understanding of where they are versus where they desire to be. They should also invest in an accountant and financial consultant who will provide them with insight and oversight into the correct plan and strategy for now and in the future.
If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter.
Here’s how to participate in #SmallBizChat: http://bit.ly/1hZeIlz
For more tips on how to start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com