Alright guys- we’re here for day 2/10 of giving you business owners tips to avoid costly mistakes and feel financially empowered.
Here are a few things I commonly see amongst business owners regardless of whether you’re just starting out in business or have been in the game for years.
Ignoring them completely
I totally get the temptation to ignore your finances in general, but especially your business finances. There are so many complexities and questions that can feel daunting.
How do you pay yourself?
How should you organize your business finances?
Are you making enough?
How do you pay taxes?
The reality is, you probably want to just stick to your craft and deliver incredible value for your clients. However, NOT addressing it will be much worse. You risk costly mistakes and also burning out because you haven’t kept a close handle on your finances and are stuck on the earning hamster wheel.
Do yourself a favor and consult with a professional ASAP to gain some clarity. Also make it a habit to check your income and bank account every few days. Thank me later.
Forgetting their business finances affect their personal finances but are not the same
Yesterday, we discussed that top line business revenue or income =/= personal income. It’s so crucial that we keep in mind what we need as our personal income and recognize that it will not match up to our top line revenue. It’s so crucial that we understand what the business needs to earn in order to cover all the necessary costs and investments (see #4 below) and plan for our monthly income from there.
Not understanding the features of their particular business structure
This is a big one guys. As a financial advisor and business owner myself, I am intimately aware of just how complex and illogical our tax code is. There are so many nuances that it can be hard to understand. However, knowing WHY you’re selecting a particular business structure is important. You should not just follow the “Get an LLC!” crowd even though they’re loud.
Once again, a good tax professional or attorney will be worth their weight in gold.
I see so many entrepreneurs forget to price their services to include taxes, retirement savings, strategic investments and salary as the business owner. This means that they are usually just covering their overhead expenses and a bit of money to pay the owner.
The truth is we need to think more long-range in terms of our business finances. Firstly, retirement savings as a entrepreneur or freelancer needs to be a non-negotiable (I said what I said!).
Imagine working so hard and not having enough money to build wealth for yourself? Or invest in increasing your skills without sacrificing your finances and incurring excess debt? I promise you there’s a better way!
Forgetting about estimated tax payments
Since you don’t have an employer withholding taxes for you with every paycheck, it can be easy to forget that uncle Sam still wants his cut of your earnings.
I see so many new business owners forget to even keep tax payments into account. This leads to a really negative cycle of not having enough money in reserves to make estimated tax payments, then running out to earn more money ASAP to cover the tax bill. Guess what that gets you? Another big tax bill.
Do yourself a favor and not only price for taxes, but also put that money aside on an ongoing basis to make sure you don’t have a self-imposed quarterly financial emergency. Keep those funds aside in a separate savings account just to pay taxes.
I hope this was helpful y’all. Please reach out to me if you want some help on how to organize your personal and business finances. I have a special project coming for you!
P.S. Be sure you’re tuning in on IG at noon every day until 11/20 for more business owner financial tips!!