You're working day and night to build your small business, but there's nothing left over for you.
In this episode of the online business clinic, I'm going to show you how you can profit first by employing smart money tactics that will put more money in your pocket so that you can focus on what matters most- building the business.
Hi, my name is Molly Ann Luna, and I want to show you some simple ways to start making more money with less effort as a small business owner.
It doesn't take much to implement the smart money tactics I'm about to share with you, and they don't cost anything either!
So grab a pen and paper because I'll be walking through five smart money tactics to help profit first in your small business.
But before we dive in, if you're excited about discovering how you can work smarter, not harder, with these smart money concepts, then be sure to smash the like button.
This is the place to be to build a profitable, portable business. New episodes are released every week.
Oh, and do stick around until the end for your chance to win a free 1-to-1 business strategy session with me.
Smart Money Tactic #1 - start with a budget.
Scratch that; I hate the word budget; it sounds so restrictive.
In my business, we refer to it as a spending strategy.
After all, cash flow is the lifeblood of business.
And if you want to build a financially healthy business, one that leads you to personal financial freedom, then money management needs to be at the top of your priorities list.
While yes, we all want to make more money, those who manage their money wisely first give themselves the best opportunity to start having their money work from them instead of just them working for money.
Set aside some time to create a business plan and a targeted marketing plan.
Determine the costs associated with implementing your plan by completing a cash flow statement so that you can have a clear understanding of your business finances written down in black and white.
And if you're a startup business and haven't yet made any money in your business. It's ok to look at your current spending habits and compare those with your business goals to reverse engineer your target revenue and gross income goals.
I'll need to create a whole new episode on this topic. If you're interested in learning how to do this, let me know in the comments below.
Smart Money Tactic #2 - get organized
Start by setting up a business bank account separate from your personal banking accounts.
To do this, you'll need to be registered as an LLC at a minimum and have a business EIN number.
Separating your business bank account from your personal bank account will allow you to minimize your personal liability if anything were to go wrong in your business dealings.
It also sets your corporate finance up for success, making it easier for bookkeeping and helping you avoid a big headache come tax season.
If you're curious to know how to open a business bank account, all you need to do is:
1. Select a local bank that offers business banking
2. Set up an appointment to meet with your local banker
3. Bring your business documents
-Employer Identification Number (EIN) (or a Social Security number, if you're a sole proprietorship)
-Your business's formation documents
- Ownership agreements
- Business license (if applicable)
Your local banker can help you open a business credit line if you so choose, although this isn't something I recommend when you're first starting your business.
As a person who believes in living a debt-free life, my debt-free mentality carries over into my business finances as well.
In the past, I have accrued business debt in hopes that it will pay off in the long run. It didn't.
Instead, it left me in a panicked state that stunted my creativity and business growth.
I now choose to operate all of my business dealings in cash. If I don't have the money, I can't afford it.
But you know your risk level and do what's best for you.
Remember: "Money moves from those who don't manage their money to those who do." - Dave Ramsey
Smart Money Tactic #3 - Set up a cash flow system
Most people look at their bank balance and think, there's money in there, so I'm good to go to make that purchase.
Not using a cash flow system is dangerous.
As previously mentioned, cash flow is the lifeblood of business. Without cash flow, your business is dead.
Having a cash flow system in place will help you avoid surprises and alleviate stress in your business.
I'm currently implementing the cash flow system I learned from reading Mike Michalowizc's book Profit First.
Income account: Your income account is a checking account that acts as a holding tank for all incoming cash. Weekly or monthly, the money gets moved by percentages into each subsequent account.
Business savings account: Plan to put at least 10% of every dollar you earn into a business savings account; doing so is practical wisdom that allows you to have peace of mind. It becomes a nest egg for if/when a business growth opportunity arises.
Profit first account: Your profit first account is an additional savings account where you pay your future self, a shareholder in your company, a quarterly dividend, or a year-end bonus as a thank you to yourself for all of your hard work. Your profit first account is your 'fun' money account that you ideally spend on a luxury item or experience you've desired to have.
Owner's compensations account: An owner's compensation account is the checking account that you pay your weekly, bi-weekly, or monthly salary if you're a sole proprietor. Your owner's compensation is your personal spending money that you can use however you see fit. If you have multiple owners in your business, you might use it as a funneling account.
Tax account: - Like it or not, you're required to pay taxes as a business owner. Your tax account can be a checking or savings account that you use to hold your future taxes. Talk to your local CPA to determine what percentage of your revenue needs to be allocated here so that come tax season, you're not scrambling to come up with cash to pay Uncle Sam. Doing so brings peace of mind. And while I know paying taxes isn't fun, it's a lot less fun when you owe the government big bucks with empty pockets.
Operational expenses- Your op-ex account is a checking account that all your business operating expenses, including payroll, come out of. If you manage your money wisely, you'll know to the penny what your operating costs are at the top of each month and allocate the exact amount of your spending strategy to this account and nothing more.
Remember: "Do NOT save what is left after spending, but spend what is left after saving." - Warren Buffet
Smart Money Tactic #4 - Build a six-month emergency fund
Calculate the target number you need to comfortably operate your business for six months with zero additional sales coming in.
Hopefully, you'll never have to tap into it for an actual business emergency. Still, if one does pop up, you'll be ready.
You might be tempted to dump the lump sum you've saved into your marketing plan, but I'd highly recommend you reconsider.
There's nothing like having 'runway' (extra cash) on hand to help you have peace of mind about the future of your business.
Smart Money Tactic #5 - Turn OFF autopay
While it might seem convenient and efficient to automate your corporate finances, there is a strong chance that you may forget about them and accidentally have them running long after you've stopped using the service you initially requested.
I.e., create leaks in your wealth-building boat, meant to carry you to financial freedom.
And yes, while it might be annoying to have to log in and pay your operational expenses, the consequences of having auto-pay pull from your bank account long after you're no longer using the service is far more painful.
A bonus tip I have for you, especially if you run an online business with many software subscriptions, is to plan to pay for the yearly subscriptions of each.
Doing so is cheaper, and you only have to process payment and rework your spending strategy once a year, freeing up time to get back to doing what matters most, growing your business.
Remember: "You must gain control of your money, or the lack of will gain control over you." - Dave Ramsey