Budget Nerd
a Mark Butler project

How to make financial decisions based on what’s Actual, Pending, and Possible.

As a business owner, consultant, or freelancer, I bet you’ve said something along these lines within the last seven days:

“I have $x in the bank and $y in outstanding invoices/payments due to me. If I could just generate another $z per month, everything would be fine.”

Without realizing it, you were using the APP framework to think about your money.

Most business owners mush all three types of money together when making financial decisions. This is a disaster.

Does that mean you shouldn’t forecast? No; forecasting is essential to financial health and growth in a business. The key is each money type to its best use:

Zero-based budgeting (or envelope budgeting, as it’s often called) asks you to:

Zero-based budgeting forces you to acknowledge how every expense in your business competes with every other expense for your money. Acknowledging scarcity improves decision-making because it quantifies trade-offs: I’m spending on this instead of that.

If I use a credit card and an optimistic forecast to spend on this and that, I’ve skipped the crucial step of asking how, when, and if this or that is likely to really benefit the business.

That’s how we end up with credit card debt and reduced owner income. No judgment – we’ve all been there.

Pending cash can also help you make spending decisions — if you keep it in the right context. You can trust Actual cash 100% because it’s already in your bank account. Depending on your business, your payment terms, and your client reliability, Pending cash might carry a 50% probability or a 95% probability. Factor it into your spending plan accordingly.

What about Possible cash?

You don’t want to factor Possible cash in today’s spending decisions. That’s how you end up saying crazy things like “Sure, we can hire that new team member! According to our forecast we’re going to double revenue by next Thursday!”

Your forecast’s job is to inspire you to take your business to another level. How? With if/then statements based on your Actual and Pending data:

“If I increase revenue 2% per month, I’ll be able to give myself a $1,000 per month raise starting in December.”

“If we can shave $500 per month off our software budget, we can shift that money into sponsorships.”

Without your Actual data, your Possible data wouldn’t mean anything. But because you can trust your Actual, your Possible will be realistic and useful (and actually inspire you to action).

That’s it.

Use APP to make money decisions in your business:

I hope that’s helpful.

Budget Nerd’s Income Report for May 2015

budget-nerd-blogHere’s the second installment in the Budget Nerd Income Reports. I hope other consultants, coaches, and service providers find them useful.

 

I’ll summarize the month after laying out the numbers.

Revenue
Consulting $12,625
Budget Nerdvana $390.00
Other Revenue $12.00
Total Revenue $13,027.00
Expenses
Distributions
Owner Distributions -$8,500.00
Business Loan -1,658.84
Personal Meals & Expenses -$45.28
Total Distributions -$4,350.00
Contractors
Emily (Data Entry) $90.00
Brad (Design) $0.00
Total Contractors $0.00
Other Expenses
Merchant Fees -$391.24
Fed/State Withholding $0.00
Govt. Fees $0.00
Tax Prep -$53.75
Hosting & Domains -$52.34
MailChimp -$10.00
Misc Software -$84.99
HelloSign -$10.05
Computers & Equipment -$17.75
Education & Training -$191.84
Meals & Entertainment -$66.22
Sponsorship -$75.00
Business Development -$57.19
Internet -$65.82
Office Supplies -$59.39
Travel Expenses -$43.71
Total Expenses -$11,465.42
Profit/Loss $1,561.58

Notes

Signing seven new clients in May (welcome!) accounts for the big revenue bump. It was a busy few weeks integrating them into the service, but things have settled back down. Emily and I are in a good rhythm supporting the clients; we have capacity for at least five more. Good thing, too, because we’ve already signed two new clients in June.

I made up for April’s shortfall in Owner Distributions (and then some); wouldn’t mind sustaining that $8,500! But I won’t raise my average distribution for a while. Building my cash reserve (which sits at $3,000 as of April 30th) and getting ready to hire a second budget specialist are bigger priorities.

I’m planning to budget 20% more to my cash reserves starting in June (from $500 to $600 per month). It’s not a huge jump, but incremental gains will make all the difference in the long run. I’ll sneak up on a huge cash cushion over time.

For the first time in nearly five years of self-employment I’ve started using an actual payroll service. I feel very grown up, but, wow — payroll taxes are terrible (they’ll show up on next month’s report).

I’m still adding money to my tax savings, although payroll withholding will make sure Uncle Sam gets his money from now on.

I’ve now made 6 of 36 payments on my business loan. That’s a nice milestone.

Having an assistant to handle nearly all data entry and management in the business has been, in a word, glorious.

 

Goals and ‘Leading Indicators’

I seem to be tracking well toward my goal of $15,000 in stable monthly revenue by the end of the year.

I’d like Budget Nerdvana (my home study course) to account for more of the revenue. I have plans to raise the price from $30 to $300 sometime in the next couple of months (which should be enough time for me to build that much additional value into the program).

I’d planned to eventually sell 100 per month at $30, but I’ve revised that to 10 per month at $300.

Other metrics I watch carefully include:

Email open rates: I run a 7-email welcome sequence to all new subscribers which is currently averaging a 63.3% open rate across 1,587 ‘sends.’ My weekly newsletter averages around 50% open rate.

Books gifted: In my sixth email to new subscribers I offer to buy them a copy of my favorite personal finance book. I do this because the book changed my life and because it helps me gauge whether I’m connecting through my writing. In April I gave away four copies of the book.

Overall I feel great about the Budget Nerd’s direction. I enjoy the work and feel very grateful my clients allow me to support them.

Budget Nerd’s April 2015 Income Report

budget-nerd-blogNothing sparks useful dialogue like real numbers. The table below lays out my revenue and expenses for the month of April.

A little context:

Consulting includes hourly consulting and my bookkeeping/CFO services.

Budget Nerdvana is a $30 home study course that helps you embrace your inner budget nerd — as opposed to your outer Budget Nerd, which is me. I’m definitely up for hugs, though.

Check out the table; then review the notes at the end. Your questions are welcome: I look at these numbers every day, so I don’t know which, if any, deserve discussion.

Revenue
Consulting $9,300.00
Budget Nerdvana $420.00
Other Revenue $6.00
Total Revenue $9,726.00
Expenses
Distributions
Owner Distributions -$4,325.00
Business Loan $0
Personal Meals & Expenses -$25.00
Total Distributions -$4,350.00
Contractors
Emily (Data Entry) $0.00
Brad (Design) $0.00
Total Contractors $0.00
Other Expenses
Merchant Fees -$260.58
Fed/State Withholding $0.00
Govt. Fees $0.00
Tax Prep -$53.75
Hosting & Domains -$20.00
MailChimp -$10.00
Misc Software -$55.98
HelloSign -$10.05
Computers & Equipment -$17.75
Education & Training -$184.95
Meals & Entertainment -$47.19
Sponsorship -$75.00
Business Development -$25.33
Internet -$24.44
Total Office -$24.44
Total Expenses -$5,135.02
Profit/Loss $4,590.98

Notes

(Category italicized.)

I expect to pay myself $6,000 per month in Owner Distributions, which means I came up $1,675 short in April. I’ll make it up in May, as I actually had the money earmarked for “Owner Distributions” and just didn’t make the transfer to my personal checking account.

My Business Loan payment is $829.42. The lender didn’t cash my check in April, so the May expense will be $1,658.84. I’ve already budgeted for both payments, so he can cash it in six months if he wants.

I’ve started training my sister, Emily, to handle day-to-day data entry in my clients’ budgets.  (If you’re a client, we’ll be chatting about this on our next call.) The first outflow in this category will happen in May.

Brad is the designer who did the Budget Nerd logo. I’d like to hire him to work steadily on the brand, so I’ve added him to my budget and I’ll be funding that category for a while to see how the business handles it.

I have close to $10,000 set aside for Federal/State Taxes, just waiting to hear from my tax guy what I owe, if anything, for 2014.

My primary goal (other than paying myself $6,000 per month) is to build a reserve of $12,000. It doesn’t show up in my expenses, but my reserve balance currently sits at $2,500.

Goals and ‘Leading Indicators’

My goal for 2015 is to reach $15,000 in stable monthly revenue with $10,000 in pre-tax profit. I’d love to see Budget Nerdvana account for $3,000 of the revenue, which would mean 100 sales per month.

Other metrics I watch carefully include:

Email subscribers: currently sitting at 230, 55 of you having subscribed in April (thanks!).

Open rates: I run a 7-email welcome sequence to all new subscribers which is currently averaging a 62.9% open rate across 1,330 ‘sends.’ My weekly newsletter averages around 50% open rate.

Books gifted: In my sixth email to new subscribers I offer to buy them a copy of my favorite personal finance book. I do this because the book changed my life and because it helps me gauge whether I’m connecting through my writing. In April I gave away four copies of the book.

That’s the April report; I hope it’s of some use to see actual numbers in a consulting and digital products business. Questions and comments are welcome!

Nerdy by Nature? Budget Nerd wants to hire you as a remote, part-time Accounting and Budget Specialist.

budget-nerd-blogAt Budget Nerd, we help small business owners smooth out their cash flow, pay themselves more, reduce debt, and finally get a good night’s sleep. We’re a scrappy team of three: Mark Butler (that’s me) and two part-time data entry assistants.

I’m looking to hire an Accounting and Budget Specialist as soon as possible to help support Budget Nerd’s growing list of clients.

First, a little about Budget Nerd.

I’m Mark, the founder. Between 2008 and 2012 I started and ran a few small businesses that earned a couple million dollars in total revenue. The money was fine, but I always felt broke. I wasn’t “good at money.” I’d float in and out of debt and stress out all the time about the finances.

In late 2012 I managed to sell my businesses and limp away with most of my debt paid off and a little nest egg in the bank.

I landed a job with YouNeedABudget.com (aka YNAB, pronounced why-nab).

While working at YNAB I adopted their simple, brilliant financial philosophy. My income had dropped 50% compared to my self-employed days, but I never felt better. That’s the power of budgeting.

After a year with the company I asked the CEO, Jesse Mecham, to let me take the YNAB software and philosophy to small business owners as a service.

He said yes, and within a few months I was working with a growing group of small business owners. At that point Jesse said “This is great, but we’re a software company. Let’s wind down the consulting and have you focus elsewhere.”

I agreed that was the right move for YNAB, but the consulting was going great. I didn’t want to stop. Within a week Jesse and I agreed I would leave YNAB with my clients. Budget Nerd was born.

Today I support 20 small business owners, helping them use a smart spending plan to keep their cash flow smooth and their stress at reasonable levels. I’ve also moved beyond budgeting, providing bookkeeping and payroll services for our clients.

Our clients keep referring their friends, and we’re maxed out. We need an Accounting and Budget Specialist to help us deliver great service and continue adding clients. Let’s find out if you’re a good fit.

The Accounting and Budget Specialist position might be for you if…

You’re a spreadsheet-loving numbers nerd. You really love spreadsheets. Sometimes at social functions you say, “all that’s missing here is a good spreadsheet,” drawing strange looks from your friends and family.

You have an accounting or bookkeeping background. It’s not a requirement, but it definitely wouldn’t hurt.

You’re meticulous and probably a bit of a perfectionist.

You love schedules and to-do lists.

The word reconcile makes you feel warm and peaceful inside, like hot chocolate.

You communicate clearly and confidently in writing.

You don’t mind going through a standard background check (after all, we deal with our clients’ finances).

Bonus points if…

Again, those are just bonuses – not requirements.

Availability

You need to be available Monday through Thursday for at least two hours each day.

The time of day is flexible. You can work early in the morning, late at night, or in 15 minute bursts throughout the day.

You’ll work wherever you like: home, the library, at a cafe, in your jammies. Doesn’t matter.

If Budget Nerd continues to grow as it has been, your two hours per day could grow quickly to four.

What you’ll be doing…

As an Accounting and Budget Specialist you’ll support our bookkeeping processes and resolve clients’ issues and questions as they arise.

On the bookkeeping side of the business, this could mean reviewing and occasionally repairing and supplementing the data entry team’s work. You’ll be in two different financial platforms (YNAB and Xero) helping import and categorize transactions, and reconcile accounts.

You’ll also help improve and update our bookkeeping systems and tools (ie spreadsheets) that let us organize financial data and present it to clients in a way that helps them make confident decisions in their business.

On the client support side you’ll be answering client requests such as:

I will (of course) train you in all aspects of the job. We’ll work closely to make sure you gain competence and confidence in each area of responsibility.

Compensation

You’ll start out as a contractor, and compensation will depend on experience. You’ll invoice on the first of every month and you can count on payment by the tenth of every month.

How to apply

Please send an email to mark@budgetnerd.me and include “nerdy by nature” in the subject line.

Attach your resume and include a cover letter that helps me get to know you and why you’re a good fit.

Hiring timeline

I’d like to fill the position as soon as possible, but I’m not in a rush.

When you apply, I’ll acknowledge your application within 24 hours. If you don’t hear from me, send it again! At that point I’ll let you know your next steps.

Thanks in advance for applying!

By the way, if you have friend or family member you think would be a good fit for the job, please share this!

How the Money Flows in My Business and Personal Life

This is a little nuts-and-bolts post about keeping your business finances clean and clear.

Here it is:

I don’t use savings accounts because a) they pay pennies in interest per year, b) it gives me one more acccount to keep track of, and c) I use my budget to keep track of cash reserves and taxes — I don’t need separate accounts for those.

(If that sounds revolutionary to you, go ahead and sign up for the Budget Nerd mini-course using the form at the end of the post. That’s where I break it all down in detail.)

The credit cards are totally optional, but I use them for security and rewards. I use a Capital One miles card in my personal finances and an Amazon points Chase card in business.

Sometimes my clients tell me they want to use the same card for business and personal transactions. Meh. Here’s why that logic doesn’t hold up:

1. You can use two separate rewards cards, earning points on each. None of the bookkeeping hassle, all of the benefits.

2. If you choose to use the same card for business and personal, the extra bookkeeping headache will cost you (either in time or money, maybe both) more than the value of the rewards earned.

That’s not to mention the damage to your decision-making that comes from muddying your business finances with personal transactions.

If you want to take this to super-pro level, set your credit cards to pay themselves off automatically. One of the beautiful benefits of using a budget effectively is I never know what my credit card balances are, and I never have to remember to make payments.

Cool, huh? As long as I’m operating according to my plan, I don’t have to babysit my credit cards. No interest, no late fees. (If your credit card company doesn’t offer this feature, I’d start shopping for a new card!)

That’s it. Nothing flashy or motivational – just a simple account setup that will keep the mess and stress to a minimum in your budgeting and bookkeeping.