It takes courage to be self-employed, especially if you’ve spent the majority of your working life as an employee.
While you probably figured out what kind of work to do based on your knowledge, skills, and experience for clients, as well as how to get enough clients to stay busy, what you may not have anticipated is how you difficult it is to have to keep track of everything.
When you worked for a company, you simply followed your job description while other people figured out how to organize the business. Now that you’re on your own, you are the one responsible for everything and you need to pay attention to all the details.
There are a lot of things you have to consider when starting your own business. What is your primary business goal and what plan do you have to achieve it? What licenses or permits do you need to get to run your business? How much do you know about managing balance sheets and income statements?
Even if you are an expert in your field and left the safe haven of being an employee because you realized that you could earn more by getting your own clients than your boss was willing to pay you, you may still struggle in your business because of poor money management.
Here are 5 tips on how to get better at financial planning.
1. Have a backup plan.
What do you do when your income becomes unstable through no fault of your own? Perhaps, you have done work for a client but he or she is slow in paying you? In the meanwhile, your bills keep on coming in as regularly as the tide. How do you manage this unexpected shortfall?
Here are two options:
A. A short term option. When you’re low on cash but expect a big payment coming soon, you can get financial help on the site BlueTrustLoans.com, which provides personal cash loans and installment loans in amounts up to $1250 as an alternative option to payday lending. The advantage of trying to get this type of loan rather than one from your bank is that these types of loans have minimal eligibility requirements, offer fast-funding and provide flexible repayment terms. In order to qualify, all you need is to have a social security number, an active checking account, and a verifiable source of income.
B. Long-term option. While it’s always a good idea to reinvest surplus income after you’ve taken your profits, it’s advisable to put some money aside for a rainy day. Do this even when you have plenty of clients and the money is coming in thick and fast. By creating a special savings account, which you never touch except for an emergency, you are able to handle any unexpected downturns in your business. Naturally, it will take time for you to develop this reserve account, but the sooner you start the better. Without even realizing it, the money will start to accumulate. Hopefully you will never need to touch it, but if you do, it’s available to help you manage a cash shortage.
2. Be aware of expense creep and new expenses.
Although you may have started your business with sufficient startup capital after researching all your overheads, it’s easy for expense creep to gradually undermine your best laid plans. Additionally, you might need to spend money to buy a business training course, buy new software to manage your business, or outsource some work when you have more clients than you can manage by yourself. While it’s possible to get a good idea of your fixed expenses, your variable expenses can throw off your budget. This is especially true if you end up with a subscription payment for a B2B service that you did not realize in the beginning that you needed to run your business efficiently. By getting better at estimating your expenses, you will be able to have more money coming into your business than leaving it. When expenses increase, try and compensate for the imbalance by finding ways to earn more.
3. Avoid using credit cards to balance your budget.
It’s easy to balance your business budget using a credit card, and it’s a dangerous way to manage your business. If you must use a credit card, don’t commingle your business expenses with your personal expenses, and be sure that you clear your credit card debt before the amount owed begins to grow out of control. If you are commingling funds because you’re short on money for your personal expenses, look for ways to get a personal loan at a cheaper interest rate than most credit card companies charge you.
4. Stay on top of all your financial paperwork.
If you are running a solo business, it’s easy to get too busy to keep track of your financial records. For instance, you might forget to bill clients or not follow up when you don’t receive payment by the due date. Another error you might make is to spend money that you don’t record.
5. Get good at cash flow management.
Managing your cash flow is something that you must get good at if you want to stay in business. Cash flow management is about balancing accounts payable (money you owe) with accounts receivable (money clients owe you).
In closing,get help with money management if this is not your forte, but don’t neglect it. You can always hire a part-time bookkeeper, use state-of-the-art software that simplifies the entire process for you, or outsource the entire business of invoicing customers and balancing your books to a third party.