A lot can change in a year. Example:I started 2018 feeling like a total failure.
After growing my business to six figures in 2016, I demoted in 2017. Revenue plummeted. Expenses soared.
How could I, as a personal finance writer, have such a hard time managing my own business money? Long story short, I've learned that managing money as a small business owner presents a unique set of financial challenges that go far beyond the basics of personal finance. I have since corrected course and reached the end of 2018 on track to surpassing a quarter million dollar revenue for the year.
Here are some of the most important things that I learned in the process.
1. Income does not equal income.
It's easy to look at a turnover like $250,000 and think you have more than enough money to spend freely, but remember that your business income is not the same as your personal income.
As you grow your business, consider paying yourself a regular salary, which supports your lifestyle while laying the foundation of your financial future. With that money and your taxes set aside, you'll know how much you can really afford to reinvest in your business.
2. You are your own HR department.
The responsibilities of running your own business go far beyond the basics of any service you provide to your clients or customers. You must also execute and oversee all other aspects of business operations, from accounting to HR. These are the necessary realities that you will need to face head-on if you wish to grow and sustain your own business for the long term.
3. Your business needs its own emergency fund.
If you know the basics of personal finance, you know that having an emergency fund with three to six months of living expenses is essential to cover contingencies. Having a similar savings buffer for your business can be equally valuable for funding unexpected costs and providing a cash cushion when customer or customer payments take longer than expected.
4 . Cash flow is king.
It doesn't matter how many thousands of dollars you've billed if, when it comes time to pay your bills, none of those dollars are actually in your account.
To mitigate the stress of waiting for those big deposits to hit my bank account, I've found it helpful to have smaller, more consistent streams of income to serve as a cash flow base. If I know I'm going to earn a certain amount on a consistent basis, it gives me cash flow security to chase those big paydays.
Related: 4 ways to create financial security without salary certainty
5. You can always earn more.
Speaking of bigger paydays, don't underestimate the true earning potential of your business. Remember that it is not always necessary to earn more to earn more. Sometimes it's about shifting your offering or your market.
So consider regularly reviewing your revenue opportunities and pivoting them as necessary to ensure you're maximizing your revenue potential.
Related: 5 things I learned about being a solopreneur
This article originally appeared in the Spring 2019 issue of LadiesBelle I/O magazine.
