Going out on your own and embracing entrepreneurial freedom sounds exhilarating…until the first time you look up and realize your finances are a mess. Hey, it can happen.
SummaryNow you have the opportunity to prove your money skills and confidence. Check out these money management building blocks:1. Face your fear.2. Reserve normal time.3. Separate your personal and professional funds.4. Save for taxes as you go.5. Give a home to financial documents.6. Run regular reports.7. Use the latest apps.8. Ask for help.Of all the other tasks you juggle as you progress through YouEconomy, money management is one of the most important and avoided.
The good news is that money management for solopreneurs can be simple and straightforward. It doesn't need to take a ton of your time, and there are plenty of tools to make it easier. The basic building blocks are the same for most solopreneurs. Over the years I have found a few that have made a big difference in the health of my business and made it much easier to scale by adding other people to my team.
Until you examine what's really stopping you from tackling your money problems, even the best financial app won't make much of a difference. Ask yourself the question:how do I assess my ability to manage money? Why? What am I afraid of because of my financial habits? Once you have answered these questions, discuss your answers with someone you trust. Now you have the chance to prove your money skills and confidence.
When I started taking my money seriously, I knew I had to overcome my fear of just sitting down and watching it. I started by opening my current account online every day. I looked at each transaction, thought about upcoming bills that week, then closed the browser window. I didn't take any action - I just watched it. After three months, I finally got rid of my fear of looking at my money. Now I do a monthly Money Session so I can check the budget, print reports, and analyze my earning potential.
Opening a checking account might seem like an extra step if you're not operating as an LLC, but it makes a big difference in both your mindset and your bookkeeping. It also makes your taxes much simpler. Be sure to reimburse yourself for any personal contributions to your business account and do not use your business account for personal purchases.
You can either use the quarterly reporting forms provided by the IRS, or keep it simple like I did at the start and take 20% off every payment you receive from clients. Put that money aside in a savings account for your taxes, then send the balance to the IRS once a quarter. Consult your accountant to learn more about tax best practices.
If you're old school and want a binder, that works, but so does a digital receipt scanner and the Evernote app. Whatever you use to keep your financial documents organized, set up a schedule to make sure they don't pile up waiting for you to organize them.
The essential monthly reports are the income statement and the cash flow statement. These reports show what is coming in and going out and why. If you have assets in your business, such as major real estate or equipment, or if you have significant debt, such as a business loan, you will also want to run a balance sheet each month to show your overall equity and liquidity. Again, your accountant can help you get started with these simple reports.
QuickBooks, Xero, and FreshBooks are all apps that can help you keep track of your money. Check them out after considering what you really need. I started with a free online app, then moved to a paid QuickBooks account when I was ready for more in-depth reporting. The right app can help you budget, track savings, and even bill clients.
No one learns to manage their business finances on their own. It's important to reach out and ask for help if you feel confused or can't get rid of your inner resistance to this part of your business. The healthier your money management habits are, the more peace of mind you will have when making the right choices for the future of your solopreneur journey.
