Once you start a business as a solopreneur, you have to learn really fast how to manage your finances. A healthy money mindset will help you survive the initial starting stages and help your business thrive in the long run.
One of the main reasons why businesses fail is because they run out of money or are unable to manage their finances. To ensure your business does not fall into this category, here are some tips to follow.
1. Have Separate Personal and Business Accounts
Every solopreneur should have separate business and personal accounts. This ensures your finances and those of your business do not get mixed up. If they do, you will have a hard time establishing a separation between your money and that of your business. Also, you will have a hard time doing your taxes if everything is a jumbled mess.
A business checking account is the best option in this case as it ensures business transactions do not flow through your personal accounts. It can be difficult to find the right transaction or information if your business and personal transactions are mixed up.
2. Establish a Separate Legal Entity
Getting your finances mixed up with those of your business is further compounded by the fact that, if you do not establish your business the right way, you will be responsible for your business’s debts and lawsuits. You can avoid all this by establishing a separate legal entity for your business in the form of an LLC.
An LLC establishes a business in a way that makes it stand on its own and allows you to manage your business’s finances without risking your own. If you ever ask how to get my LLC registered,the answer lies in talking to a legal expert so they can tell you how to structure your business. There is also a lot of information online about this, but this should be taken as advice and not a substitute for legal help.
3. Establish a Business Line of Credit
Every business should build up some credit. This is so that you have some options if you ever need financing for your business. It is always good to establish this credit before you need it so that when you need it, you have access to a lot more money than you would if you do not have good credit.
Simple ways of doing this include getting business credit cards and repaying on time as well as borrowing from a traditional lender and repaying before the due date arrives.
4. Let Technology Help
One of the reasons solopreneurs might find it hard to manage their finances is because they might not be well-organized. There are lots of different tools that can help you organize your finances in an easy and cost-effective way. Some of these include bookkeeping and accounting software, calendars, tax software, and so much more.
In addition, you should keep records of all your business transactions so that it becomes easier to do the books or calculate your taxes when the time comes. All the documents you need for this can be organized, categorized, and filed properly using appropriate software.
5. Schedule Some Time to Organize Everything
Busy entrepreneurs might not have the time to follow every transaction or prepare every financial statement. What you can do, however, is find some time to stay organized. Ideally, this should be a block of time that you set aside to work on your finances. This can include adding data to your accounting software, scanning and filing documents, paying bills, sending invoices, or reviewing financial reports.
Try to set aside 15-60 minutes every week. If you do this, you will not have a large pile of work waiting for you at the end of the month or when tax season comes around. It will also give you a weekly overview of your business, which makes it easier to see if you are hitting your targets and gives you time to adjust.
6. Pay Suppliers as Soon as You Can
Suppliers might give you some time to pay your debts. Although you might be tempted to pay when the due date comes or is near, it is always a good idea to pay when you can. Paying when you have the cash flow to do so allows you to focus on other areas of your business because you know your suppliers are paid. It also allows you to organize your finances by ensuring you are never late for a payment and helps you avoid penalties or destroy business relationships.
Paying early might also qualify you for some discounts which could improve your cash flow and help you direct the money saved to other pressing business needs.
7. Have an Emergency Fund
A solopreneur should always be prepared for when cash flow slows down. Having an emergency fund could help massively with this. Having funds that can help you and your business survive for 6-12 months will ensure you do not strain when payments are late or your business is having a low season.
Money management is one of the most important skills any solopreneur could have. Managing your money will not only help you keep your business afloat, but it could also help you open new lines of credit and survive when things are not going as well as you thought they would.