What's The Verdict?

You can't begin to know how much your business can afford to spend if you can't even find your bank statements and credit card charges to refer back to. If you don't already have a filing system for your financial paperwork, set one up -- now! It doesn't have to be complicated -- a single file folder for each financial account and each category of expense will do fine. Go through all the stacks and piles around your office and get at least the current year's paperwork into your new system.

Now it's time to figure out where your money is actually going. Let's be honest -- most entrepreneurs have no clue where their hard-earned cash goes. You may have an abstract idea that so much is for marketing and so much is for telecommunications -- but what about the rest?  It's easy to spend indiscriminately when you can justify expenses as a "tax deduction" for business -- then you have to ask yourself how necessary are those costs? The best way to do track your cash is to use an accounting program like Quickbooks and enter all business expenses monthly -- but at the very least, consider a log book.

Create a list that includes static expenses (things that cost the same amount every month), variable expenses (those costs that fluctuate from month to month), and expenses that come in chunks throughout the year (like insurance payments or registration fees for your annual conference). And don't forget about the expenses you are racking up because of financial disorganization -- interest charges on your credit card debt, late fees because you forgot to pay a bill on time, overdraft charges because you didn't balance your checkbook. You might need to go through your last 12 months' credit card and bank statements to get a clear idea of how much daily business life actually costs you.

Do you really know how much you make? It sounds pretty impressive to say, "I make $60 an hour," or "I make $150,000 a year". But after taxes and Social Security and any other items that are deducted from your check, what are you actually bringing home? If you are self-employed, consider all of the hours you put into running your business that aren't billable -- time spent marketing and handling administrative duties and attending professional meetings. Take a minute to really examine all of your sources of income and calculate an honest total -- you can't have a realistic budget without it!

So, comparing income to expenses, how does it look? If you came out in the black, congratulations! If you ended up in the red, let's find some spending which can be reduced or even eliminated. Start with any late fees and interest charges -- a good bill-paying system will take care of these. Also look for convenience expenses -- things that you spend money on because you are overwhelmed, too busy, or just worn out. Perhaps by re-evaluating how you use your time, you might discover that many of these expenses are just symptoms of misplaced priorities. When all of your spending decisions are deliberate ones, you will find yourself several steps and quite a few dollars closer to a balanced budget that allows you to reach all of your financial goals.