Money Management Habits Every New Business Owner Should Have!
Whether you're looking to start a freelance business, turn your side-hustle into a full-time business, or find new strategies for money management...this is the blog for you!
You need money to start, maintain, and scale your business so it's crucial that you develop (and revisit) your financial strategy.
WHY SHOULD MONEY MANAGEMENT MATTER?
You may be thinking to yourself, why should you expend energy thinking about money management?
Money management is often overlooked when starting your business.
We get it, when starting out your main focus is the business itself and its daily functions. However, according to the U.S. Bank study, 82% of business failures are due to poor cash management!
So, where does good money management start?
It starts with you and your habits!
Limit your spending and save more - adopting a saving mindset is one of the first steps towards making smarter financial decisions as a new business owner.
Making a lot of money starts with great money management skills. If you are constantly splurging or you don’t prioritize your spending habits, your business will fail and it will do so quickly.
Check out these money management tips below that will help you spend smarter as a new business owner, creative, or side-hustler.
CHARGE WHAT YOU'RE WORTH
Use a combination of your experience, industry standards, and your business expenses to set your prices. This way, it will be harder for potential clients to take advantage of you.
You can always search "How much should I charge for [your services]?" in a search engine.
Then, make an outline of your personal and business expenses (for example : software subscriptions, business memberships, healthcare, etc.)
Your final price should reflect industry standards, your experience, expenses, service fees, operations fees and a little extra to accommodate your worth (which is priceless!)
The best way to ensure you don’t drive your business into the ground is to practice saving. It is KEY to make sure you know where all of your money is going so you don’t end up undercutting your profit goals.
This means you need to be planning ahead of time AND tracking everything.
If budgeting is an issue for you, try using a budget app like Mint or PocketGuard to track your spending and saving! These apps connect to your bank accounts and will subtract upcoming bills, ensuring you don’t overspend.
TRACK YOUR SPENDING
Another smart money habit is to prioritize your spending. Figure out essential costs for subscriptions, software, and tools that allow your business to run on a daily, and make a list from most important to least important. This will help you cut unnecessary costs--allowing you to put more of your money back into your business.
Use an accounting tool (Honeybook, Wave Apps, QuickBooks, Dubsado, etc) to keep track of your invoices.
CREATE EMERGENCY FUNDS!
Wouldn’t it be nice to know you had a little extra something stowed away? Emergency funds go hand in hand with budgeting and saving-- setting money aside for emergencies, and emergencies only! This is an essential part of money management as a new business owner or even a seasoned business owner. Having an emergency fund will make it easier to deal with the unexpected.
If you think you’ll struggle to save without dipping into the emergency fund--try opening a new savings or checking account so that it is not touched UNLESS there is an emergency.
MAKE SEPARATE BANK ACCOUNTS.
While we're on the subject of setting up different accounts, it is important to keep your personal bank accounts separate from your business accounts. This will make it easier for you when it comes to budgeting and tracking business expenses and revenue. It will also make it less tempting to go on a spending spree with your hard-earned profit because it will be separate from your personal spending account.
* If you're looking to open up a new account, check out our new client First Boulevard!
You can sign up for early access here!
INVEST IN YOURSELF AND YOUR BUSINESS.
It is just as important to put money back into your business as it is to put money towards yourself. Far too many new business owners underestimate their own role in their businesses.
Paying yourself a set amount each month is a great way to go about investing in yourself because it can easily be tracked and deducted from your business’s expenses. You pay others for their work, so you should be getting paid too!
On top of setting money aside for yourself, you should be constantly investing in the growth of your business as well.
“A small business that wants to continue to grow, innovate and attract the best employees [should] demonstrate that they are willing to invest in the future...Customers will appreciate the increased level of service. Employees will appreciate that you are investing in the company and in their careers. And ultimately you will create more value for your business than if you were just spending all your profits on personal matters." - Edgar Collado, the chief financial officer of Tobias Financial Advisors
Investing in the future of your business will not only make your team happier but your customers too. Finding the balance between spending on your personal matters vs. your business is KEY.
PUT MONEY ASIDE FOR PASSIVE INCOME.
Investing some of your business’s profit into stocks is a great way for your savings to compound over time. According to entrepreneur.com, a long-term study of this strategy covering the years 1926 to 2010 found an average 12.1 percent annual return for small stocks and a 9.9 percent annual return for large stocks. This also accounted for three large market crashes that took place between this time frame.
Without having to do anything, some of your profit or your savings could be growing every year!
We hope this provided you with valuable insight into the often-overlooked subject of money management as a new business owner. If there was one takeaway, it is to save, save, and save! Make sure you have money for emergency situations and make sure you are tracking EVERY expense.
WHEN YOU CAN, HIRE A FINANCE PROFESSIONAL.
At BRVC we're big believers in doing what you can, then doing better.
When you're first starting a business, you may have to run every part of the business yourself. You have to track your saving and spending, separate your accounts, send invoices, and set money aside for taxes.
As you scale your business, it will be easier to hire a person who specializes in money management for businesses.
Which kind of finance professional do you need for your business? Check out this article on merchantmaverick.com.