Being a business owner can be one of the most wonderful, frustrating, exhilarating, scary, and overall emotional things you do in life. If you’ve raised teenagers, you know the feeling!
One of the hardest aspects of owning a business can be the financial piece. Typically, you go into business because of your love of an idea or product, and you want to share it with the world. You also want to get financially rewarded for the time, energy and money that you spend. You have the desire to share your knowledge and your love with others, to increase their understanding, provide something they need or want, and – ultimately – have fun while enhancing your own life as well.
But then reality sets in. It’s costing more money than you expected, and it is more difficult and taking longer to get clients than you anticipated. So, you keep spending more money for marketing, education, anything that you feel will help generate income for your business and, hopefully soon, yourself. But, how do you determine how much to spend? And, when is it ok for you to take personal money (aka profit) out? You love what you’re doing, but don’t love the financial aspect of it, and it starts to feel more like work – without the paycheck – which is NOT what you had envisioned. Frustration starts to creep in.
Paying attention to the numbers
If you truly want to have a profitable business, you HAVE to pay attention to the numbers on a monthly basis. Whether it’s an excel sheet to track expenses or a full-blown accounting software, like QuickBooks, where everything gets recorded and reconciled, it’s important to know how you’re spending your money every month. If the balance in your checking account is what you use to determine if your business is doing ok or not, it’s time to step up your game.
A few steps to get started:
- Evaluate how much money you spend on each of your major categories (marketing, overhead, consultants, sub-contractors, etc)
- How much monthly income do you need to meet those expenses?
- If your income is lower than those expenses, you’ll need to either increase income or decrease expenses before you commit to any other expenses
- Begin to take a small amount – maybe $100 – for yourself every month, consistently
- As your income increases, be sure to increase your ‘take home’ pay (your portion of the profit) before adding additional expenses
- Don’t forget that taxes will need to be paid on that profit, so plan for that as well!
The good news is, if you’re able to hold the line on expenses but generate more income, you’ll be able to increase your take home pay from the profit you’ll be making! When it does come time to add more expenses, evaluate how much income you need to generate to cover the cost, and make sure that you continue to increase your take home pay until it is where you’d like it to be.
Being a business owner can be tough, but it can also be very rewarding in so many ways. Make sure that it is rewarding in a financial way.