Your Gym’s Finances Rx’d (5 Critical Cash Flow Mistakes of CrossFit Gym Owners, and How to Fix Them)

About two years ago I hit a personal best on my 1RM back squat. The next day I went hiking with some scouts and was sucking wind within the first 10 minutes of the hike.

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By day I run a budgeting software company. Really early in the morning, I CrossFit.

Realizing I was strong (relative), but had no cardio to speak of, I stumbled upon CrossFit. I rolled my own at my home gym for a while, and then joined an actual CrossFit gym a little while later. Julie (my wife) joined right along with me.

I’m pleased to report that my 1RM back squat has increased, and my cardio has gone through the (it’s all relative people!) roof. In other words, I’m stronger, faster, more flexible, and more coordinated than I’ve ever been.

Four or five days a week I walk into the gym and let our trainers teach me how to be more fit. You guys can coach someone to an explosive snatch, a lightning-fast Fran time (mine is 3:27, I need to learn that buttefly pullup), and a perfectly-executed muscle up.

Now, I want to turn the tables a bit, and teach you CrossFit owners how to be financially fit. Let me highlight a few mistakes I see being made regarding your cash flow management. I want to leave you financially stronger, faster, and more flexible.

Mistake One: You Intermingle Your Business and Personal Finances

Keep separate bank accounts for your personal and business use. Don’t intermingle the two. It makes tax time horribly, horribly inefficient and probably pretty inaccurate. If you mingle business and personal expenses, and end up being audited, you will hate your life.

Another reason to keep your business and personal finances separate is so you can know how the business is even doing! Are you having to heavily subsidize its operation with personal money? Are partners having to toss in a few hundred dollars each month to cover “this or that” on a regular basis? Are you profitable? If you don’t separate your finances, answering those critical questions is next to impossible.

Solution: Separate your business and personal finances immediately. Separate bank accounts, and separate tracking.

Mistake Two: You Make Spending Decisions Based on What’s in the Checking Account

I know how this goes because I made the mistake of running my software business the same way. You look at that big checking account and you think, “Yeah…we can buy another rower.” Or maybe it’s, “No way can we buy another rower! Or paper towels for the bathroom!”

Do you need to hire another coach? Can you afford it?

Are you wanting to build out a complex membership management/billing/training system? Can you afford that?

The sound system is broken. Can it be replaced?

Looking at that big (it’s all relative) pile of money in your checking account and asking yourself if you can afford something…you’re asking an impossible question, because you don’t have proper insights into what expenses have already “spoken for” that money.

In other words, you may have $9,800 sitting in your checking account and you think, “Well, yeah, let’s get a new rower.” Before you realize that um, taxes are due. Not only can you not afford that rower, you suddenly can’t afford those paper towels.

Solution: We teach our small business clients this simple question: “That money sitting in my account, what does it need to do before more money comes in?” Answer that question every time you’re “doing the books” (see Mistake Three) and you’ll find clarity only found at the end of a 20-rep squatting session.

Mistake Three: You Don’t Track What You Spend

You have no idea if that member management system is actually worth it, because you aren’t tracking what you’ve spent on it, and how that’s translated into more revenue.

You don’t know what you spend on equipment maintenance, because you haven’t bothered to record when you spend money on fixing the old stuff, or buying something new.

Those t-shirts you bought. Were they worth it? That bowling event you planned for your members, how much did it actually cost, all-in?

You write down your workouts, right? And you have your members record their workouts, right? Recording your spending is just as important. Just like a recorded WOD, recorded spending gives you a historical record that provides information for you down the road as you begin to proactively plan what to do with your money.

Solution: Track what you spend. But don’t fall prey to Mistake Four in your pursuit.

Mistake Four: You Use Quickbooks to Manage Your Books

The beauty of a CrossFit gym, is that it’s simple. Oh so simple. I love everything about it. You’re a cash-based business, you carry limited (if any) inventory, your monthly revenue is predictable over the short term, and you don’t have to worry about invoices or purchase orders.

In other words, you don’t need Quickbooks. Most small businesses don’t. It’s overkill and will only confuse and de-motivate you.

Solution: Use YNAB (pronounced why-nab), of course ;)

Mistake Five: You’re Reactive to Cash Crises, Instead of Proactively Deciding What’s Important for You and Your Gym

The rower breaks, so you pay for the repairs on a card (probably your personal card, see Mistake One). You decide you want to throw some kind of “End of the Open” event for your members, so you buy some food, maybe rent some tables and chairs, and have a great time. But you didn’t really have the cash to float that, so you put it on the card.

Your equipment is in such disrepair that prospective members are a bit turned off by the first impression you’re giving them. But you can’t buy new equipment because hey, it’s expensive. You grit your teeth and grab the duct tape (I made up the part about the duct tape).

Instead of waiting for these things to inevitably happen, I want you to look at that big pile of money in your checking account, and answering that question of “What should this money do for me?” I would encourage you to look AHEAD and be proactive about these expenses.

For example, let’s say you want to throw an annual member appreciation barbecue. You’ll need tables, chairs, and food. Maybe the whole thing will cost around $600. You’d like to do the event every April – which means you have a year before the next event. If you set aside $50 per month for the next year, you’ll have the money ready when it’s time to buy the burgers. No crisis, no credit card – no worries!

Solution: Look Ahead for those Larger, Less-Frequent (but Significant) Expenses and break them into manageable, smaller monthly amounts to save for. A few examples: taxes, annual membership events, CrossFit Open extras, equipment repairs (just guess on this, and be a pessimist about how long the gear will last), extra holiday spending, and perhaps the summer drought, where people freeze or cancel their memberships.

Small businesses fail because they manage cash poorly. You don’t want a financial DNF for your gym - so take care of your cash!

What Next?

While I wrote this article specifically for CrossFit gym owners, these principles are universally applicable to any business owner. I’d encourage you to take our free 9-Day Small Business Cash Flow course. You’ll be able to ensure your business finances stay fit for the long haul.

Goodbye Quickbooks: You Need A Separate Business Budget

You Need a Separate Business Budget (YNASBB—nope, that doesn’t work. Let’s let it die here.)

YNAB will serve your small business well. It has mine. It gave me what I call, “pile-of-money clarity.” Several years ago, YNAB was profitable with a very small team, and I couldn’t have been happier. Then I moved YNAB from Quickbooks to YNAB. That move was a game-changer for me. I suddenly had clarity surrounding the business checking account balance. I no longer had to wonder if we could hire, because I could see that our category for payroll was doing just fine. I saw I could be more aggressive with advertising, because I saw that we had advertising dollars where they were supposed to be.

We went from a company with seven part/full-time team members, to a company with 27 over a two-year period.

All because I used YNAB, where it settled my stomach, and helped me conquer the natural risk aversion I had to hiring people, and growing the business.

Yes, I believe YNAB (the software) will serve your small business very well. It will help the risk-avoider take calculated, comfortable risks. It will help the risk-taker pull back a little bit, and be more calculated in his or her risks as well.

How to Create a Separate Business Budget

In order to do this right though, you need to set up a separate business budget. Unless you have the teeniest of tiny little side operations (where a separate master category for the entire business suffices), you need to set up a separate business budget.

Go to File -> Create a New Budget… and get started.

Keep your business budget separate. It will make everything easier (taxes, reconciliation, personal vs. business expenses, etc.)

 Wait a Minute, YNAB Won’t…

YNAB won’t send your invoices for you (though you can actually track them pretty well in YNAB). YNAB won’t track your time for you. YNAB won’t track your mileage for you. YNAB won’t handle your asset depreciation. It won’t print checks. It won’t integrate with your accountant’s tax software. YNAB won’t run your payroll for you. YNAB won’t track your inventory for you (it could, and maybe I’ll write about that later).

Well sheesh Jesse, what will YNAB do?

It will add value to your business by giving you the insights you need to clarify your priorities, cut wasteful spending, boost spending where profitable, and maybe even show you that you can take a steady salary. It will give you peace of mind, as it relates to your business’ cash flow. Besides finding great people to hire these past several years, the best business decision I made was to move YNAB to YNAB.

A P.S. Regarding YNAB’s “Won’ts”

YNAB, strange as it sounds, is a multi-million dollar company now. Here’s how a multi-million dollar company handles all of the things that YNAB won’t do. (Hint: an end-all-be-all software package can, many times, be harder to use than approaching your software needs a la carte.)

Bookkeeping. We do our books with YNAB. As a result, YNAB has a healthy buffer, keeps spending in check, and the entire team gets to spend a week in Costa Rica this year (Rule Two applied over an 18-month period!)

Invoicing. We don’t send many invoices, but when we do, we use Freshbooks.

Time-tracking. YNAB has just started tracking time on a new project, and we’re using Harvest (Adam, our CPO, likes them.)

Mileage tracking. I track mileage for the four months after taxes are due, and then give up. When I do track mileage, I use an app on my iPhone. Come tax time, had I faithfully recorded the year’s mileage, I would send my tax accountant the mileage report.

Depreciation. YNAB has a few assets that require depreciation. Our tax accountant tracks that for us each year. (Any accountant worth their salt will do that. As most of you probably know at this point, Casey Murdock handles YNAB’s taxes, and a bunch of the team’s personal taxes as well.)

Check-writing. We have a book of (free) checks, and when we need to write one, Chance (our COO) grabs a pen from his desk and fills out the check. I sign it, then enter the check in YNAB. If we need to send a lot of checks at once, we use the free business bill pay service of our bank.

Tax filing. YNAB doesn’t integrate with our tax accountant’s tax software, so do you know what we make him do? We send him a spreadsheet of all of our inflows/outflows of the year, and we make him do “accountant-y things” and build a pivot table to aggregate category spending and manually enter the numbers into his software. It takes him a few minutes, and he checks for accuracy along the way, instead of checking the accuracy of an import after the fact. (I re-read this and admit that I sound quite snarky here. It’s a pet peeve of mine, letting your accountant’s two hours of work for your taxes dictate your entire year’s financial workflow.)

Payroll. We run our payroll through Paychex. I pull up the monthly payroll report and enter the outflows into YNAB. It takes me a few minutes. I like hand-entering all of our team’s pay, because it makes me happy they’re on the team.

Inventory. We don’t have any inventory to track, but if we did, I’d buy a separate piece of software to track inventory (if it was a lot), or I’d use YNAB to do it (if it was just a small bit of inventory tracking). Cash outlays for inventory would be entered in YNAB, obviously, because YNAB handles your cash.

Goodbye Quickbooks: Use YNAB to Track Accounts Receivable REALLY Easily

You can track anything in YNAB, really.

Taylor, our lead developer, uses YNAB to track household chores:

If you’re  a small business owner, freelancer, etc. you could certainly use YNAB to track your Accounts Receivable.  Accounts Receivable, for those of you that didn’t spend your early 20′s sitting in accounting classes, is just a fancy way of saying, “Money that people owe me.”

I’m going to pretend that I’m a designer, and I have three clients: Acer, Broncos (the Denver, winning kind), and Chrysler.

First, I set up my Accounts Receivable account.  It’s Off Budget because I don’t spend from it.

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Oh, and I’ve set up a checking account, which we’ll need once we collect money.

I do some work for Acer, and send them an invoice for $1,000.  No cash has changed hands at this point, so I obviously don’t mess with my checking account.  But my transaction in the Accounts Receivable account might look like this:

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Let’s invoice for some more work accomplished:

  • Broncos on 1/20 for $2,000.
  • Chrysler on 1/22 for $800.
  • Acer on 1/25 for $1,200.
  • Acer again on 1/31 for $1,500.
  • Broncos on 2/2 for $2,300.

These transactions would look like this:

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At this point, you’ve done a lot of work, but haven’t collected any money. That’s no good.  But you’re not  worried.  You can look at a few different points of data to see how things are going.

For instance, how much are you owed in total? That one’s easy. You look at your Accounts Receivable account balance:

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But wait, how much do the Broncos owe you? A payee search gets you there, looking specifically at the search total at the bottom:

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Chrysler inquires about an invoice: “We lost it. But want to cut you a check today. What was the amount owed on invoice 0003?”

Easy. We’ll search the memo field for Invoice: 0003 and pull it up:

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This is all well and good. But thank heavens, Acer actually paid us some of what they owe us.  Today we received a check for $2,200.  On the check stub, they specify that the $2,200 is payment for Invoices 0001 and 0004.

We deposit the check.  At this point, this is the first time we’re dealing with actual cash, so this is the first time we’re thinking about The Budget.

We record the inflow in our checking account:

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A few key points to remember:

  • This is a “transfer” because we’re transforming money owed to us into cash in our checking account.  It goes from being a receivable, to being money in the bank to be budgeted accordingly.
  • The “category” could honestly be anything. You could record it to a specific type of work you did (Design: Logo, or Design: Branding), you could have each of your clients be a category if you wanted to track it in such a granular way (that could get messy), or you could just use the generic Income category.
  • The “memo” field is a great place to record which Invoices were paid.
  • Obviously the inflow is for the amount of the check received from Acer.

The flip side of the transfer transaction looks like this:

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Not much to report here. It’s a “transfer” out of the Accounts Receivable account, and into the Checking account.

You can see that our Checking account balance increased to $2,200 (the amount of the check deposited), and our Accounts Receivable balance decreased by $2,200, down to $6,600:

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I f you wanted to be particularly careful on tracking specific invoices paid, you could flag the specific transactions in the register of the Accounts Receivable account. I picked red for no good reason:

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Marking paid invoices with a flag allows you to become a Search Ninja, and answer the question that Acer sends you in an email the following day: “Can you please give us the invoice numbers for any remaining amounts owed?”

That’s easy. Search for “Payee: Acer, Flag: None”

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If they asked you to send them a list of all invoices paid for the year, you’d change the search only slightly: “Payee: Acer, Flag: Red”

As you can see, the sky’s the limit on exactly how you track receivables in YNAB, but is it doable? Absolutely.  Does it mean you can ditch Quickbooks? Absolutely.  Quickbooks is, for most small business owners, a quagmire of confusion, feature bloat, and in 95% of small business use-cases, pure overkill.

Think about this: the joy of using YNAB to plan and allocate your resources according to the vision you have for your small business and being able to collect what you’re owed. Perfect!

Calling All Small Business Owners

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Before joining YNAB in March, I spent the previous five years running three small web-based businesses.

I loved self-employment in spite of (and because of) its stresses. All three businesses were serendipitously sold last December, leaving me with a little extra money in the bank and a lot of experience.

Jesse was one of my main sounding boards during my time as a business owner. Now that I’m working for YNAB, we’ve had many more conversations about the challenges and opportunities facing those of you trying to carve a living out of the economy.

We’ve asked ourselves what the YNAB brand could do to support small business owners – beyond giving you great software and 4 Rules for money management.

We have some ideas, none fully formed, and Jesse’s interest is piqued just enough that he’s given me the green light to explore ways YNAB could help small business owners thrive.

If you’re a small business owner of any flavor, I’d like to chat with you about your goals and challenges.

Don’t misunderstand – this isn’t a conversation about solutions. We don’t have any (yet). I’m exploring whether a big enough group of small business owners share a set of challenges in common that match well with the YNAB team’s core strengths. If I find a compelling set of overlapping problems, Jesse and team may develop a service (beyond software) to solve those problems.

Here’s what I’m asking for:

  • 30-45 minutes of your time (I’m flexible on day/time of day).
  • A phone number or Skype name.
  • A candid chat about your life as a small business owner.

Willing to chat with me? Use this form to get in touch.

Thanks!

One Year of Using YNAB for YNAB (the Business)

It’s been about a year since I moved YNAB to YNAB, and I wanted to report how it’s been going.

In a word, awesome.

Speed

Monthly bookkeeping used to be the absolute bain of my existence (and I’m a trained accountant, so it’s not that the stuff is technically hard for me).  I hated it.

Now, I hate it less, because I’m done a lot faster.  What took me about 4 1/2 hours each month in 2011, took me about 2 1/2 hours in 2012.

So the speed is obviously a big win.

Tax Planning (and Preparing)

What about taxes? Well, here’s a little test to see if your accountant actually cares about your numbers, and is a tax planner instead of a tax preparer.  The two are so very, very different.  The test?  If they demand that the format you give them is importable into Quickbooks.  Yes, it saves them time, because then they can export that Quickbooks format into their tax preparation software, give it a once-over, and finish preparing your return.

I went to the Reports section of YNAB, and did an export of Last Year of the Income v. Expense report.  I gave the spreadsheet to Casey (a guy I will recommend again, and again, and again to every YNABer that needs a live person to help with their tax strategies. Here’s his book, and here’s a podcast I recorded with him recently) and did he come back and demand it be in a Quickbooks format?

Nope. He combed through the data, had questions for me, and then went on his way.

I’m generalizing here (and getting off-topic), because I’m sure there are many tax professionals that just like the time savings of having it be QB-importable, but also really do look at your numbers and try and save you money.  But if you get the feeling you’re just one of a thousand returns done by your accountant, and that he is, perhaps, running a tax prep mill more than a tax planning practice…you should probably shop around a bit more.

Anyway, doing a quick export and handing my tax data off to Casey was super easy.

So, speed has improved, and tax preparation is still a piece of cake.  That all pales in comparison to the greatest benefit of using YNAB for YNAB: The Budget.

The Budget

I’ve always been so extremely conservative with the business money, I’ve never really had to budget (your alarm should go off right there).

The business has always been profitable, except for a dark time in 2009 when we were sprinting to the finish line of YNAB 3 and I was draining every last dollar I personally had.  But besides that period that I will never repeat? It’s been profitable. (I should say, that had I been budgeting in 2008 and 2009, I likely would never have experienced the dark period that was YNAB 3 Development).

So, I never budgeted for the business until 2012.

And then I started budgeting every single dollar (duh), and saving for rainy days (double-duh) and… it’s been awesome.

A few wins, all directly related to the fact that I’m now budgeting for the business:

  • We spend less frivolously.
  • We save for big projects (like the iPad, and Other Big Things).
  • We set aside money for fun things, like our meetup this year, where we’ll be doing some wilderness survival training.
  • We set aside money for Christmas and birthday presents.
  • We set aside money for our Buffer, just in case the revenue stops flowing for some reason (My target is a three-month buffer for the business).
  • We can be more aggressive with our hiring.

That last bullet has made all the difference. I see new hires as debt, more or less.  I promise I’ll pay them indefinitely, and they promise to totally change their life, and spend (potentially and hopefully) years pouring their heart and soul into YNAB.  This is debt in my mind, and I take it very seriously.

So serious, in fact, that I was pretty afraid to hire people.  The budget has fixed that. I now see a Category in the Budget that says [redacted] and I get excited about it! I see the funds are there to hire someone, and everything’s giving me the green light.

It’s help me be more aggressive.

And for some of you swashbuckling entrepreneurs that roll in a totally different way, it may tell you to slow down a bit :)

Either way, running the business with YNAB has been one of the single best business moves I’ve made.  If your business is YNABable (you don’t have inventory, or significant AR/AP tracking needs, and you don’t need significant reporting on capital), you ought to give it a serious go. You can read how I moved to YNAB to get a step-by-step.

Moving YNAB to YNAB

Laugh if you will, but I fell for the line that once I formed YNAB into a “real company” (meaning I actually filed papers and all of that), I would need appropriate accounting software to run the show.

The obvious bookkeeping choice for a small business is Intuit’s Quickbooks, and I went with the obvious choice for five years and one month.

As of today, YNAB has moved to YNAB. We’re now running our small business books on YNAB 3.6.4.  I’m going to cover the following:

  • Is your business YNAB-able?
  • Why I made the switch (TL;DR: accountability, user feedback, workflow)
  • How I made the transition (TL;DR: don’t worry about history)
  • What took me so long (TL;DR: integrated billpay, history)
  • What I’m looking forward to (TL;DR: less time spent bookkeeping, better resource allocation)

Is Your Business YNAB-able?

YNAB is not your ideal bookkeeping situation if you:

  • need to run payroll within your bookkeeping software (we use a third-party payroll service and that works just fine).
  • have inventory
  • have significant accounts receivable (where analysis of your accounts receivable is a business-critical operation).
  • have significant capital (you can work around this by tracking capital in Off Budget accounts, but depending on your needs, that may be insufficient).
YNAB is ideal for your bookkeeping if you:
  • Do the books on a cash-basis (vs. an accrual basis)
  • Have a “simple” business process (you provide a service, people pay you)
I wrote a post about YNAB for small business a while back, and you may want to refer to that as well.

Why I Made the Switch

Three reasons have been beating an incessant drum in my mind for quite some time now, but yesterday was the final straw.

Yesterday Casey (my super tax preparer, who authored Tax Insight) sent me an email with “initial questions” regarding his pouring over the books as part of preparing the business return.  These initial questions were long. So I ended up having to pore through all of QB to find the answers. It took forever.

As I sat there pouring through the interface and being frustrated with how everything worked (it’s feature bloat, to be honest, the software basically tries to do too much) I realized that it was my fault. I wasn’t using YNAB for YNAB, and I knew I could.

Of course, that was all frustration mounted on top of what is normal Tax Time Frustration. No office furniture was harmed during the process.

Before the inciting incident, there were three significant reasons as to why I’d been wanting to switch for quite some time:

1) Eating my own dog food.  In software development, you eat your own dog food by using the software you’re building. It gives you huge insights, and can’t be overstated. I use YNAB personally, but I’ve been wanting to understand how YNAB can work for small businesses for quite some time now, and taking the plunge with my own business will certainly give me solid information.

2) Accountability. It felt wrong to spend business money and not record it on my phone. This thanks to the fact that, for our personal budget, my iPhone has become a very trusty companion. It feels very negligent to give someone money and not record what just happened.  I’ve written about how small business owners can throw frugality out the window, and I recognize I’m the first victim of that. Using YNAB for YNAB will make me überaccountable.

3) Work flow. I’m faster in YNAB. I’m extremely familiar with it, I don’t have to use my old Sony laptop to run it (I do with my version of Quickbooks), and YNAB is built for speed of entry. Quickbooks, not so much.

How I Made the Transition

1) Pick a start date. I picked January 1, 2012. I recommend you  pick a quarter cutoff, if you’re too far into the year. For me, that meant re-doing January’s books in YNAB. Not a big deal to do one month’s work again.

2) Set up your accounts. In YNAB, we have four:

  • Checking (mainly just for payroll, rare check deposits, and receiving Paypal transfers).
  • Savings (used to set aside quarterly withholdings for the Tax Man. At the end of each month I multiply the profit by my estimated effective tax rate and transfer that much from Checking into Savings).
  • Paypal (receives all sales, affiliate payments, and used to pay a few international team members for the time being).
  • Chase Credit Card (used for operating expenses such as software subscriptions, meals, utilities, hosting, travel, etc.)

All of those accounts are On Budget.  I pulled up my balances from Quickbooks and recorded starting balances for each of the four accounts as of December 31, 2011. I categorized them all as Income Available Next Month so they’d flow into January.

3) Set up categories. This honestly took a little bit of time. I was starting to get Category Bloat from Quickbooks, where I’d have some random expense and make up a new category for it and then, six months later, realize I already had a category where that could have belonged.

Also, Casey forbade the idea of categorizing a million things as “General & Administrative”. He says it creates a tax nightmare. It also doesn’t give me any actionable insights, so I guess that’s one time where the tax process forced me to do something that might actually have some value. And yes, I’m going to keep taking shots at all the inefficiencies of taxation we experience because I’m right in the thick of it.

I ended up with 47 categories spread across 12 master categories.  47 is about 40 more than I’d want :)

But some of these are forced necessities. A category for 401k contributions should probably stand on its own. And you definitely need to have a Shareholder Distributions category if you want to track money that flows to owners (you, the small business owner) that doesn’t come through payroll.

I also did a bit of a workaround since YNAB doesn’t (still/yet) offer customizable income categories. I made some Revenue master categories, with products underneath as the categories. For instance:

Revenue will not be categorized as “Income : Available…” I’ll basically being dropping in negative budget numbers into revenue categories, so it will pull the revenue out and push that revenue back up to the Available number. I’ll then be able to budget the Available where it’s needed.

4) Budget the funds already earmarked. In my case, I knew the Savings balance was specifically for quarterlies so I immediately budgeted the balance into the quarterlies category.  The only time that category will have an outflow is when I cut the checks for estimated tax payments. It’ll only have an inflow when I budget to it (I’ll also be doing a transfer, but on-budget to on-budget transfers aren’t categorized).

5) Import transactions from your start date forward.  In my case, I imported from 1/1/2012 through 1/31/2012. (I’ll do February’s on Thursday).

6) Payee Settings are your friend. Though the Payee Settings is our least favorite screen in the whole app, use it. We’ll make it much better eventually. (I don’t mean eventually like, “eventually I’ll run a marathon” either. I really do mean it.)

On our Chase CC, I knew we’re going to have Google charges for pay-per-click.  See this here:

You see how the payee came in with that *403… appended to it? I right-clicked on the payee and selected “Payee settings…”

Now the next time we do an import, if a payee comes in looking like “GOOGLE*4039…” it’ll be cleaned up to be the “Google” we all know and love. It will also automatically be categorized to Advertising & Promotion : PPC.

To be clear, if I have a payee that changes itself all the time. Maybe I’m a contractor and I purchase form four different Home Depots fairly regularly, I can do a “contains” rule. So if we normally get:

  • HOME DEP*ST123
  • HOME DEP*ST343
  • HOME DEPOT #987 (a legacy home depot… making it different from the others)
  • HOME DEP*ST932

We could set up a rule: “Contains HOME DEP” and it would capture all four of them:

  • HOME DEP*ST123
  • HOME DEP*ST343
  • HOME DEPOT #987
  • HOME DEP*ST932

Being diligent on your Payee Settings with your first import will improve your efficiency tremendously. Of course I still recommend looking everything over and making sure you’re aware of your outflows. This will just get you to a quicker spot where you can jump over to the Budget and start doing the meat of financial management: proactive planning.

[Bonus Hint: If you're using Paypal, use the Reports -> Monthly Financial Summary option and record transactions at that level. For instance, I do not, nor would I ever think to, record every single sale of YNAB. That would be insane. I record one transaction that I get from the Monthly Financial Summary. I believe it's Gross Receipts or some other line-item. Anyway, that one report gives you all the information you need to record high-level transactions from Paypal into YNAB. If you're spending longer than 15 minutes with your Paypal account each month...you've got to try my way.]

What Took Me So Long

Well, I’ll tell you what didn’t take me long: actually switching. I ended up spending about 2 1/2 hours from a blank slate to getting January up to date. My normal monthly process takes me four hours.

But why did I drag my feet?  There were two main reasons:

1) Integrated billpay. I liked that I could pay domestic vendors right from within the software. I liked it until I realized that once I sent a payment with that method, if the check wasn’t cashed, it would be six months before the funds would be returned to me (verses the normal three months for the straight checking billpay when I log in to the bank). And the only place I could see those pending payments was within the software. It felt like a black hole of money.

I’m over it now. I’ll use my checking account’s built-in billpay to cut checks. Either way I’m still clickity-hopping through one interface or another.  My workflow will be to enter the transactions in YNAB (1-2 minutes), then enter them on the bank’s site (20 minutes).

2) History. For all the talk we throw around about how you should look forward with your money and not back, I sure had a hard time letting go of the history in Quickbooks. And then I realized I wasn’t letting go of it at all. I’m certainly not going to delete the data. If I ever need to consult prior years of data, I can fire up Quickbooks and take a gander. Hint: I won’t have to do that nearly as much as I think I will.

So I’m starting fresh, and it feels good. Eyes forward, and brain now in planning mode (vs. post-mortem mode).

As I re-read this, I don’t know what took me so long. I feel great.

What I’m Looking Forward To

I’m looking forward to looking forward. I want to be more aware of our resources and how we’re using them. I want to be able to point to expenses and attribute benefit to those expenses (or stop incurring them if there’s no attributable benefit). I want to be able to manage the business cash flow with the same ease and comfort I enjoy managing my personal cash flow.

I’m looking forward to my accounting process going from 4 to 2 hours per month. I’m looking forward to not relying on direct connect to sometimes pull in the data for me. I’m looking forward to not paying Intuit to have to upgrade–something they would have forced me to do next year.

If you’re a small business owner and you’re thinking about using YNAB for your small business, I hope you found this walkthrough helpful. I’ll try and post more as I discover how YNAB (the software) is helping YNAB (the business) and its owner.  If you have any questions, please ask them in the comments and I’ll see what I can do!

 

Lavish Spending, Merciless Cost-Cutting (But Secretly This is About Pricing to Infinity and Beyond)

A few weeks ago I played lagged-out, totally-delayed-to-where-I-couldn’t-participate webinar host to Ramit Sethi (of I Will Teach You To Be Rich) while he taught YNABers interested in earning more money on the side about…earning more on the side.

Participation was impossible since I was about 20 seconds behind the live performance. That gave me the opportunity to scan the comments as they came rolling in throughout the presentation. Wow, did the comments roll in.

I should have written this post the next day, because my memory isn’t as fresh now, but I’ll give it a shot anyway.

$9 on Chips — Even in New York That’s “Pricey”

Ramit opened by saying that he purchased a bag of chips, didn’t check the price, and was floored to see they cost nine dollars. In a hurry, he purchased them anyway. Long story short — he loved the chips. He now purchases them regularly. He said they could cost $20 — he’d still buy them.

The other example he gave — a $300 shirt.

The comments began rolling from everyone, just dripping with incredulity. I watched, mildly amused, and wondering just how good those chips really must be. And what color the $300 shirt is.

Ramit closed by repeating something that he repeats a lot. And it’s good he repeats it, because it’s an important lesson:

Spend lavishly on the things you love, and cut costs mercilessly on the things you don’t.

And I find myself wanting to write this as the next sentence:

Here are a few of my lavish spending sins...

Because I want to confess. And I want to use the word ‘confess.’ But that right there is wrong. By using the words ‘sin’ and ‘confess’, I’m implying that lavish spending is wrong. And then we all get to decide what’s lavish.

Congress called. They want you as part of their Lavish Spending committee…

…which is my way of saying that it’s futile. And a waste of time. And probably a bit lame for all of us to judge everyone for how(ever) they use their money.

As long as they’re thoughtful about it. Conscious about it.

Lavish on Purpose

Ramit’s use of the word ‘lavish’ is a bit to blame here because lavish–just the word itself–signifies that it’s a bit over-the-top. It’s kind of saying that you’ve perhaps gone overboard a smidge or two. And I don’t think Ramit’s use of the word ‘lavish’ is a coincidence. I think he’s using that word to drive home the point that YES it can be lavish and there doesn’t need to be any guilt associated with your purchase because you’re proactively planning and choosing what you want to do with your money.

You’re budgeting my friend!

The fact that some of you spend lavish amounts of money on fishing tackle just blows my mind. Really? For fishing?

And you ladies out there that own 437 different stamps used for scrapbooking. Really? A little lavish don’t you think?

You just don’t need to feel guilty about those 437 different stamps. Or those 90 lures that all look the exact same (to me…). You planned for it. You paid cash for it. You get to be lavish about it. Whatever that means.

Merciless Cost Cutting and Snooty Restaurant Choices

If you noticed recently that you’re only watching network television anyway…cancel the cable. If you noticed that you aren’t going to the gym…START GOING :) If you’re not using all of your minutes, downgrade your plan. Cut costs mercilessly.

Look at the value you’re getting. Look at what you’re paying. Make sure those two things make sense. Both sides of that equation matter!

Here’s something snooty to chew on. I will not eat at the following restaurants: Olive Garden, Chili’s, Applebees, TGIFriday’s, Outback, Texas Roadhouse, McGrath’s, Joe’s Crabshack… the list goes on. Julie can cook those places into the ground. Every time I went, I would walk out feeling slightly sick and completely unsatisfied. I’d rather begin a fast than eat at those places. You could call me and tell me that you want to take me to lunch (great!) and it’s all on you (even better!) and you want to go to Chili’s (nOoOoOo!!!) and I’ll tell you just to come over to my house and we’ll split the difference ;)

Because I’d rather pass four times on Olive Garden to go once to Bambara’s.

It’s just about conscious decisions. No guilt. Just planning. Thinking. And no more knee-jerk reactions.

So those of you that were a bit incredulous at the $9 chips… you’re doing that too! You’ve got your lavish thing. Enjoy it. You planned for it.

[Enter the business connection postscript here, so read on if you want to get insights into the pricing aspect and the Big Tie-In that I think was missed.]

Later on in the webinar Ramit was talking about targeting your niche. Really targeting it. Where you decide on a very specific demographic/end client case and you target that person. All of your language should be that target client’s language. If they say “allocate” instead of “budget”, you should start saying “allocate.” If they’re always talking about how they want more “time”, you should stop selling them on the flash-bang feature that does this-or-that and talk about every feature through the lens of time savings.

I’m remembering the example Ramit gave about having a newborn baby where you’re picking between two photographers. One takes pictures of everything (and does a great job). But this other photographer, his whole site has great pictures of newborns. Every single line of copy on his site talks about photographing newborns — about the different nuances taken into account…all of the details he mentions (that you didn’t know you cared about until now)…

The specialized photographer makes the sale nine out of ten times. And you know that’s true!

So…with the photographer pricing for people that know they really, really want his service. Or for the bag of chips that is remarkably delicious… doesn’t price become basically moot?

And that’s where you can price to infinity and beyond.

A Wording Change, More Downloads (We Love Free Stuff)

Based on a recommendation by Pamela, I’ve been doing some splittesting of our homepage. I know most of you read this blog to hone your budgeting skills…but this test result has larger connotations (and may help some of you small business owners out there!)

Our prior button that would take you to the download page:

And when we changed the ‘Download Now’ phrase to be ‘Free Trial’:

The results were cool:

We’re constantly running tests like this and the results are quite surprising. Comment if you want me to post tidbits like this on occasion and I’ll keep ‘em coming!

You Should Ship Now (not sooner, or later)

I shipped YNAB Basic…

–When it was a spreadsheet celebrating the color spectrum of the rainbow:

–Before the Four Rules existed (they were actually in there, I just hadn’t discovered or articulated them).

–Before I knew a single thing about web design:
Launching of YNAB Basic 2.0

Taylor and I shipped YNAB Pro…

–Before we had ever met in person.

–Without doing any betatesting(!).

–Without the ability to have multiple accounts.

We shipped YNAB for iPhone…

–Before meeting the developer (Sebastian, our iPhone guru) in person.

–With the bare minimum of acceptable features (some would disagree here).

When Facebook launched, they were only available to college students.

When the iPhone launched, it was only available on the Edge network (and, at the time of this writing, it’s still only available on AT&T — after several years!)…didn’t have multi-tasking…had a 2.0 megapixel camera…

The Hardest Part

The hardest part about starting something is shipping. It’s so easy to refine..”perfect”..and never actually push anything out the door.

You never actually call a potential client and try and make a sale.

You never put up a “Buy Now” button for people to purchase your idea.

You just sit there and refine.

What’s Holding You Back?

Fear?
Perfection?
Some big roadblock related to the human condition?

Set an unrealistically close deadline to ship. Hit that deadline.

With YNAB 3, it was 2010. I think we shipped…some time in December of 2009. By the skin of our teeth. Taylor was literally working 18-20 hours per day for weeks. Despite superhuman effort, we still made some concessions. The app was slower than we wanted (a pleasure to work with now though!), and we had to drop features that still haven’t made it into one of the later iterations (goals, drag and drop moving of money between categories, error-checking for on/off-budget accounts, and many others).

Deadlines work. Set one and hit it. Launch with errors. Launch with bugs. Launch with less than your moving-target ideal. Just launch it already!

The Advantage of Shipping Now

Two HUGE advantages come to mind if you’ll just ship now.

One, you’ll learn in an instant what you should be working on next (and it probably wasn’t what you were going to spend the next six months working on!). You’ll discover areas of improvement right now — making your next iteration even better (multiple accounts in YNAB — what a novel idea!).

Two, you’ll be motivated. I am oh so grateful to that first person that purchased YNAB in its ugliest form of existence. Although I had to refund their purchase (they were on a Mac and it wouldn’t work for them), I knew I had something that at least one person was mildly interested in (which meant there had to be more!).

So no, nothing about YNAB 1.0, or 2.0 was very pretty. Sales were slow, but *just* enough to keep me motivated to work on it further. *Just* enough to make me want to devote free-time hours to this little “side project” (the goal of the side project being to pay our $350/month rent payment).

Launching will amp you up more than reading about launching.

Publishing will motivate you more than reading about how to be published.

Shipping will teach you more than reading about shipping (stop reading this–go ship!).

I’d rather ship a dozen products “prematurely” than never ship that one product still on the road to perfection.

Hey Small Business Owner. Your Frugal Self Called. They Want Their Money Back.

It’s deductible.

Oh, I run that through the business.

This is a business expense.

90% of you small business owners say something like the above to justify spending money on who knows what.

Marketers know this. If you have a value proposition for a business, you can instantly command a higher price because suddenly you’re talking about the hopes, dreams, aspirations, and burning desires of the small business owner…

If I were ever to package up YNAB for Small Business…I’d probably double the price. Products leveraged in a business usually create more value. You see this all the time.

But you, as a small business owner, need to be painfully aware of the fact that you are weak when it comes to resisting purchase that are “for the business.”

Your Cost Radar is Skewed

If your business is bringing in $300,000 gross, but your take home from that is $60,000 you deal with two very different psychological cost radars. Evaluating a $300 purchase through the lens of your $300k gross business is entirely different from evaluating a $300 purchase through the lens of your household (where you likely compare it to the $5k/month of take home you have).

You see what happens there? You’re simply less sensitive to pricing. Is there something beyond the difference in price sensitivity that drives your reckless business spending? Yes there is.

Business Money is “Special”

For some reason, you treat that money as special. Once it hits the household, oh sure, you watch those nickels and dimes like a hawk. But if it’s in the business account? And somebody comes knocking, selling you the next best thing to revolutionize your business…you go for it hook, line, and sinker. Because hey, it’s deductible, right? I mean, it’s a business expense. It won’t affect your household at all…

And you really like shiny things. So every chance you get, you upgrade your business phone to the latest and greatest because hey, it’s a business expense. It’s deductible.

(To compute the value of a deduction, multiply the cost of whatever thingamajig you’re buying by your marginal tax rate — that’s the tax you pay on the next dollar earned. Your CPA can tell that to you and some tax compliance software will give that to you in a summary report. The tax considerations of business expenses are legitimate. If your marginal tax rate is 35%, that’s a 35% discount on whatever you’re purchasing that can be fully deducted. However, the purchase needs to make business sense first. That’s your litmus test.)

You Report to…Yourself?

Another nice thing about the business coffers is that you don’t have to answer to your spouse to nearly the same level of detail when it comes to your purchases. So…the iPad you just bought (you’re going to be developing some software for it, so you needed one)…no need to talk to Julie your spouse about it. It’s a business expense.

The netbook you purchased to do testing of your software on netbook resolutions…that doesn’t go through the home budget so…Julie your budget doesn’t need to know about it.

The business account is like your personal playground where you don’t have to answer to anyone.

And you need to change that.

Your Business Needs A Budget (YBNAB…oh dear that doesn’t work)

Revolutionize your business finances by putting your business on a budget.

Apply the same YNAB Rules that you have personally, to your business. Magic will happen:

  • You’ll be pickier about where you spend your money.
  • You’ll glean insights into your strategy. If you want to know the strategy of a business, just follow the money.
  • You’ll be accountable to something besides yourself (because we know how well that works).
  • Doing the monthly books will force you to look at reality. Perhaps you’ll see that you need to change direction radically to stay in the game.

And maybe you could share the books with Julie your spouse and have them ask questions. Get a different perspective. Be forced to defend your purchases!

Be aware of the fact that your Business Self and your Home Self may be two entirely different people and your Business Self may very well be flushing hard-earned dollars down the toilet :)