So many people just jump head first into starting a small business with their only thought being about making money. They don’t put any time into how they will manage the money once it starts rolling in, especially not when it comes to managing how they pay themselves. Clients always ask how do I manage my income. Here’s my answer.
All Income Is Not Profit
One critical thought to understanding your money is knowing that all of the money that you make is not profit. This is a huge misconception; people who are starting out soon realize. Profit is a financial gain; the amount earned and the amount spent in buying, operating, and by producing something are very different. Don’t confuse what your dashboard says with what you actually made.
Managing Your Money with Tools
In the last couple of years Outright bookkeeping has been the best thing that has happened to my business. I can see my income and expenses all in one place. It also saves me time and money when it comes to my taxes. This is still one of my favorite programs to recommend to new business owners. Last year the system had a couple of glitches with clients not receiving invoices so I went back to using WaveApp for invoices. Which is really good. The staff over there is pretty amazing and they are always answering my emails and tweets. A great tip to help you better understand your money would be to sit down for 2 hours a week managing it. Don’t be the person who doesn’t know where their money is going. Are you accruing fees and not realizing it?
My personal and business accounts all have a minimum amount in them. Having $2000 or more in your personal checking will keep you from having to transfer money every time you need money for something personal. This is how you build wealth and establish a good relationship with your money. I saw a very popular business owner tweet how her account had zero dollars in it and was waiting for her next paycheck. I was in shock because her company is super successful, unfortunately, her money management is poor.
Graphic from Jaymee of JayAdores – image belongs to her and was created for her site. Using for illustration purposes.
You receive money from customers or clients. All that money is deposited into your business checking account. Roughly 70% off of that income stays in the account. You will transfer 30% to your business savings account. The purpose of having a business savings account is to cover taxes, unexpected expenses, or other business concerns. Now you will take a percentage of 30% or less from your business checking account and deposit that monthly, weekly, or bi-weekly as your paycheck. You can pay yourself monthly, weekly, or bi-weekly. It truly depends on your management of finances.
I am fine with paying myself every other week because there is a base amount of money always in my account that I can live on. Just like any other paycheck you receive, my check from my business covers the same thing. The income that stays in my business account is for business expenses such as: paying freelancers I contract, hosting fees, dues, and other expenses I have. In 2014, my goal was to keep my expenses under $1200 a month for business. Which I did great at. You can never really know what to expect with expenses. Your business could grow over night and what was once $89 a year for hosting turns into $89 a day.
Tools To Help
To really succeed in business you need to learn how to manage your money not the other way around. Too many people are working hard to just live an average life; tragically they don’t manage their money well. How can you take a hold of your finances today?