How do you manage your business finances if you are self-employed? We all know that there is nothing new under the sun. Maybe. In business, however, this could as well be true.
The fact is this: you can grow your not so tiny business into a corporate empire. And the process to this desired land could as well lie right under your nose. Or in your business books.
While owning a business of your own making is desired by most, not many people actually live this dream. And those who do tend to go about it the wrong way. I have some good news for you: you don’t have to waste your dream of financial independence.
In this article, we will discuss the four simple tricks to manage your self-employment finances. The best way.
Why manage business finances?
And here’s why you have to master these tips.
Self-employment then becomes an option. And we want you to do it right. To build up wealth. Create a second income stream. Or just ensure you provide better for your family.
So how can you better manage your finances if you work for you? This is how.
1. Have a financial safety net
Remember how nothing under the sun is new? Well, you’re not the first to start your own business. Sadly, you also won’t be the last.
That means there have been successes and failures alike come before you. I can only guess where you want to end up.
Statistically, the majority of Kenyan startups do not see their second anniversary. And Business Daily Africa attributes this to a decline in your business income, increases in the cost of operations or poor economic conditions.
You could also be the reason your business crumbles. Bad business decisions have killed more businesses than you can imagine, so ensure you protect your business from you. Yes, you read it right.
I pray that your business fares better. I really do. But it might not. And you should plan for such eventuality.
When you accept this likely, you can plan for it. This could take different forms. Yet the most important is that you’ll have a shot at trying again. Sooner than most.
I would recommend, therefore, that you hedge your bets (and reduce this risk) holding some of your wealth outside your business.
2. Separate business and personal money
I know this is difficult, especially if your business is small and not organized formally.
But how much would you like to grow? Because however difficult this is, the alternative is surely worse?
Running separate accounts for business and personal money allows you more room to plan your business finances. In the long run, this might determine how high your ceiling is. Or how soon you bankrupt your business.
As the manager of your business operations and its finances (as well as everything else), keep an eye on your cash flows and revenues (for the business). Also, know how much money you have withdrawn from the business. And do not mix the two.
The small business owner in you might relax the grip on a few strings for your enterprise, please don’t let that happen. Or you won’t withdraw from the business for much longer.
3. Pay yourself a fair, regular amount
The only way to successfully separate personal from business expenditures is to pay yourself.
You need an income stream that supports you and your family. And should you fail to pay yourself a regular salary, you will take from the business. And probably without the records to track your drawings.
To successfully manage your personal finances it helps to have certainty about what your income is. A regular salary will guarantee that.
However, decide on the best mode of paying yourself a fixed salary amount every month. This is also easier on your accounting, for which you will not always have enough time to guess when you took from the jar.
And do you really want me to say the benefits of knowing how money flows in and out of your business? Great, now we’re making progress.
Still, treat yourself as an employee of your business and give yourself a raise when your business starts to record more revenues. In the same way, record a salary expense and salary payable liability for those months your business cannot pay you a salary.
4. Have an exit strategy
Do you know where you are going with this business? You should if you want to manage its finances well. All the best entrepreneurs do.
Whether you would consider selling it or scaling up, having a clear direction will help you manage your finances better.
Assuming you plan to sell (even if you don’t), you will position every part of the business to maximize the price it can be sold for. Either way, you want to do well in your business. You will also prefer a seamless transition if ever you were to leave the business.
You will also need a clear plan of how to add value to your product offerings, the sale price, and how or to whom it might be sold.
A clear exit strategy guarantees you that transition.
Manage small business finances
I’d bet you created this business to meet specific objectives. And, that going out of business is definitely not one of those goals.
Through better management of your business finances, you give yourself the chance to succeed and build an empire of your own. Or just achieve stable success in running your business.
The four tips above should help you manage your business finances better. Better finances will enable your enterprise to record success that’s proven elusive to most startups and self-employed entrepreneurs
Now go out and improve how you manage your business finances. And as usual, The Venture Brat will be rooting for your success.