So you’ve decided to take the plunge and go into business for yourself. Congratulations! You’re in for an exciting (and sometimes nail-biting) journey.
But the main adjustment to make when transitioning from employment to entrepreneurship is of course money. Going from a reliable, set income every month to the unpredictable “feast and famine” of working for yourself is stressful, but it’s all part of the worthwhile journey of self-employment.
Now, I’m not a financial expert and I don’t pretend to be. But I’ve solely owned and operated my own business for 4 years now – so here are 5 micro-business financial tips and tricks I’ve picked up along the way.
1. Pay Yourself Consistently
This isn’t always an option when business is particularly slow, but aim to take a consistent wage (drawings) for yourself on a reliable basis. You can take your drawings in one lump payment on a set day each month, or split it consistently throughout the month – e.g., a set amount on the first and 15th of the month, which may ease your business’s cash flow. Whatever you choose, it needs to work both for your business’s situation and for you personally.
When business is doing well, it can be tempting to give yourself a bit of a bonus. Resist this temptation. Try to leave as much money within the business as possible – you don’t know when a surprise expense is going to come along and clobber your company finances. Cash flow plays a part in 90% of all business failures (Source: ONS) so leave yourself a buffer wherever possible.
2. Let Last Month’s Work Pay the Bills
Budget in advance whenever possible. Aim to get yourself in a position where your business can pay its outgoings (including your personal drawings) with last month’s revenue. When a business relies on the money coming in throughout the month to pay essential expenses as they crop up, a single late payment can leave you exposed – potentially sending everything into a tailspin.
3. Plan for Consistent Money-Making
When you’re self-employed, work can easily become very transactional. A client comes along, you fulfil their requirement, they pay you for your time, then you’re on to the next customer. But if there isn’t another client waiting in the wings, you may have a problem.
If possible, consider ways to serve your clients in a way that favours regular, ongoing transactions over single, ad hoc sales. This isn’t going to suit all kinds of business, but look at success stories like LootCrate and Dollar Shave Club who model their business around ongoing subscriptions rather than one-shot purchases. Offering suites of ongoing support can help smooth out the peaks and troughs of being in business.
4. Don’t Let Ad-Hoc Payments Catch You Out
This is a mistake that’s all too easy to make, and one that I remember making myself in my company’s early days. When you’re trying to put together a full picture of your expenses, you may find yourself listing off all of your monthly expenses with ease, but forgetting about some of your ad-hoc or yearly costs.
I chalk it down to “out of sight, out of mind” – you see your monthly expenses flowing out like clockwork, but costs that are few and far between can easily be forgotten about. Thankfully, with a bit of self-awareness and experience, this is easily put right.
5. Prioritise Your Outgoings
It may not be the most pleasant part of being self-employed, but sometimes you have to consider worst-case scenarios. Look at each of your business’s outgoings in turn and consider what would happen if you are unable to keep up with payments. How would this affect your ability to make money? How would one or more missed payments affect your reputation with each supplier? Would it impact your ability to serve new and existing customers?
To give a rather extreme example, not paying your office’s rent on time would have much more disastrous implications than being unable to pay for new business cards.
This exercise should help you prioritise your outgoings. Be prepared to abandon lower-priority expenses if you hit hard times. Try to put measures in place to flag any financial deficits before they happen, and let your suppliers know in advance of any disruption to agreed payment terms. Giving them the heads up about any shortfalls ahead of time is much more professional than simply missing a payment with no warning. When you show willing to open a dialogue, some suppliers may even be open to negotiating an alternative to tide you both over.Newly #selfemployed? Help keep the #feastandfamine at bay with these 5 tips. Click To Tweet
So, reader, it’s over to you. What was/is the biggest adjustment when moving from employment to entrepreneurship? What do you wish you could have warned yourself about before embarking on this journey? What keeps you going in business when the chips are down? Let’s share our experiences down in the comments!
DISCLAIMER: This article is provided only as a guide and should not be considered personal, professional, or corporate financial advice. Yell Limited and this article’s author advise that you seek your own independent financial advice.