Being financially responsible is not just important for your personal life but it is extremely important for your business to stay out of the red. One of the things I repeat constantly over and over to clients at ICB Consults is all the money you make is not profit for you to spend on a new Michael Kors bag. Business does not work like that. Trust, I wish I could keep every penny I made, but that’s not the case.
Monthly Income
How much does your business bring home every month before taxes and expenses? This is a number you should know off top. If you are a freelancer I know it will vary from month to month. Go based on your lowest income month vs highest. That way if you do bring in more the following month its extra. Service based companies do you charge hourly for services or a flat rate fee? They both have their pros and con’s find which system works best for you. I personally charge a flat fee for services. If you are a product based company, do you have products already in inventory or do you constantly decrease income by purchasing merchandise? A great book to read would be My So-Called Freelance Life
Monthly Expenses
What does it cost to run your company on a yearly, quarterly, monthly, weekly and daily level? Expenses include (not limited to) merchandise, web hosting, phone, internet, travel and more. Knowing what you are spending money on helps you learn how your budget is flowing. Personally, I believe your business expenses should be less than 30% of your monthly revenue stream. If you are making $4000 a month your business expenses should be under $1200 a month.
Build Your Credit
You may not want personal debt but some businesses that are not self-efficient yet need business credit for them to run. Especially if your company goes from a $3000 level to a multi million dollar sales level. There are warehouse, staffing, insurance, and other much bigger expenses at that level. You can build business credit by doing theses steps:
- Apply For EIN Number – IRS.gov website
- Register your business with a business credit agency – D&B (most popular)
- Apply for a business credit card at your bank – always pay it off & ONLY use for business
Track Everything
It amazes me how many people do not keep an accurate record of their business expenses! This is a nightmare when it comes to taxes. It’s a serious nightmare year round to be honest. There are a plethora of tools out there to help you do book-keeping: GoDaddy!, Wave App ,and FreshBooks are great for SMALL BUSINESSES! I know someone is like what about Quickbooks, they are great for “bigger” small businesses. If it’s just you (or less than 5 people) I would suggest using one of the above three.
Money Management Education
If money management is not your thing then investing in tools, workshops, seminars or similar educational avenues may help you. In the last 10 months or so I have become well versed in money management because I decided to invest my time into learning more about it. You don’t have to want to switch business paths and become a CPA but managing your money well is the best tool to make sure your business flourishes. LearnVest, InDinero, Money Smart, Dave Ramsey, and Investopedia. are all helpful in this area.
What can you do today to ensure your business budget is on track for the new year?
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