As much fun as it is to start a creative business, that fun won’t last if your finances aren’t in order. To get the most out of our endeavor, you’ll want to have a simple but organized structure for money.
Believe me, once you have it all together, it will be much more enjoyable when you’re making every dollar!
The key is starting as early as possible.
The ideal time to start working on small business finances is before you make and spend money.
But, if you’re way past that point, I’ll still be able to give you some pointers. It might take a little bit longer, but the earlier you do this, the better it is. Especially when tax day hits! You’ll be able to file your taxes in no time.
Have a solid source of income
Let’s get one thing straight. If you’re after a passion and you want to build a business with a solid foundation, it’s going to take time. A considerable amount of time. Not the get-rich-quick way.
So, if you’re strapped for cash, you’ll want to make sure you have income from somewhere else.
This is an article about how to become successful in finances. I don’t have the answers for making $1000 appear in your bank account overnight. I’m talking about building your dream business the right way. So if this means you’ll have to work on the side as an assistant or have a full-time job and do this on the side, then do that!
But, if you don’t need to make extra money tonight to feed yourself and your family, you can skip this step.
Budget, budget, budget!
With money coming in from another source, we can move on to managing this money properly.
To have your money working for you, it all starts with your personal financial habits. If things aren’t going well at home, it will reflect and affect your business.
As a freelancer or entrepreneur, chances are you’re funding this business yourself. You have no income yet so it’s important to see where that money can come from.
After trying different methods, zero-based budgeting is best!
Why? Because you don’t waste a single penny of your hard-earned cash.
What is zero-based budgeting?
Let’s say you budget your money every month. That means if you have $4000.50, every last cent is “assigned” to something.
I’m simplifying this like crazy but $1000 for rent, $1000 for utilities, bills, and insurance, $500 for everyday necessities leaves you with $500.50. If you don’t have to spend that money you still need to put that money to work. So this might mean a rainy day fund, a 6-month emergency savings account, or an investment like a stock.
At the end of the month after budgeting, you have $0 (sort of). It’s “sort of” because you may have an extra $5000 in the bank account you’re saving to use for the following month. Being a month ahead of schedule is ideal, by the way! As long as it’s all assigned, you’ll know exactly where your money is going.
I personally love using YNAB (You Need A Budget). I’ve heard great things about Every Dollar, but I haven’t tried it. Every Dollar is also twice the cost. There are free options like Mint, but it’s not a zero-based budgeting system. You end up doing more work to get everything assigned in a budget.
Set aside money for the business
Are you in the red or breaking even on personal finances? You might want to start with some free options and do your business planning before you start spending money!
You can no doubt make $100 go a long way. It’s even better if you can put $500 towards your initial business investment!
Saving up $100 shouldn’t take too long. The fastest way is to do a freelance service and you’ll have that money in no time. If you can’t offer anything, cut back on eating at restaurants for the month. The average American spends around $250 a month on going out!
Bonus: you might end up losing any weight (if you need to) or just getting overall healthier from homemade meals!
The key is to not touch any saved or earned money until you reach your business investment goal. You can do it!
Separate bank accounts
After you’ve successfully saved your first business startup cost, put that in a separate account! This will be easy if you’re a freelancer or entrepreneur with a sole-proprietorship. Meaning it’s just you working as an independent contractor.
Sole proprietors typically just use their social security numbers for opening bank accounts. So you can even open one in the same bank and login if you want.
Also, consider (AFTER you know you can stay out of massive debt) a business credit card. Again, as a freelancer, you can easily open one up under your name. Most banks let you give these accounts a nickname when you log in online.
Now you can put your earnings in the business checking account and you can track your expenses on the credit card.
It’s important that you’re still able to pay your credit card every month in full. If you can’t, don’t spend the money! There are many free services to get you started on your first business.
If you have YNAB, you can make a separate budget for your business, or you can keep it all together. As long as you can tell which purchases are personal and which are business related. This is very important and a good habit to have from the start. You’ll be an expert in your finances a lot quicker.
There are two ways to pay for taxes as a sole-proprietor. One way is to schedule it quarterly and pay them at that time. This usually works if you have a predictable income and you don’t want to wait until the end of the year.
The second way is to pay it come tax day. This is what most people do since we start off with unpredictable income.
To make sure you’re not surprised with how much you owe, make sure you deduct some money every time you make an income.
I usually take out about 20% of my income and put it in a separate savings account. I don’t touch that money until tax day. What’s nice is that if you have to write off some taxable business expenses, you don’t end up needing to pay the full amount you saved!
Taxes are why you should have a separate bank account. You’ll be able to track all your expenses and you’ll see which ones are tax deductible. Also, keep all your business-related receipts in your desktop or Google Drive.
If something unimaginable (like getting audited) happens, you’ll have all the receipts and evidence to back up your taxes.
Disclaimer: I’m not a tax accountant! Talk to one who’s experienced in small businesses if you need help!
Get familiar with your own startup costs & finances
Now that everything is set, here is a list of possible business expenses to consider.
- DBA – if you’re starting a business that doesn’t have your name in it
- Business license/sellers permit – the rules are according to your city
- Domain name
- Web hosting
- Shop fees
- Marketing services/software
I know it’s tempting to get fancy services like LeadPages, ConvertKit, Buffer, etc. However, if you don’t have much money, there are free services like Mailchimp to help you get started. It’s all about that minimalist mentality!
Organize and thrive
Going into your business with a sober mindset –that you have a very limited amount of money to start with– will be so beneficial!
You will learn to check yourself every time you want to make another purchase. You’ll also make your money go a long way. Every dollar will count in your books and you’ll start turning a profit sooner.
Are you managing your finances well? What other finance methods do you have that work well?