It didn’t take her long to go out of business.
She was 22 years old and it was the first time she’d owned her own business.
Why was she forced to fold her business?
Not for the reason you might expect: lack of sales.
She went out of business because she was uneducated about keeping records for taxes, budgeting finances and keeping cash flow positive.
This story was told to me recently by a GKIC member who I’m proud to say is doing much better in business these days.
Depending upon your own personal experience, it may or may not come as a surprise to you that one of the top reasons small businesses fail is because of their lack of keeping their financial house in order.
Taking care of billing, tracking your expenses, taxes and other financial tasks can seem overwhelming and stressful for new business owners.
Even those who have been in business for themselves awhile can find managing their finances intimidating or perhaps not your favorite thing to do.
However getting and keeping your financial house in order makes things not only less stressful, but can help ensure you don’t overspend and that you have enough money for your savings, investments and retirement.
Here are seven tips for getting your financial house in order.
1) Get some advice. If you’ve never been in business for yourself or if you struggle with managing your finances, get some advice. It’s an investment that could prove crucial to your survival and one of the smartest investments you can make. It may be as simple as meeting with an accountant to get advice or finding a seasoned, successful business owner who can give you advice on how to run a profitable business.
2) Create a budget. When starting a business, your income may fluctuate. Therefore it is very important to have a budget both for your business expenses and your personal expenses. Use your lowest income or your average income, rather than your highest income, to base your budget on. In your business budget, you’ll want to include items such as tax payments, marketing, education, Internet service, your cell phone, and so on.
3) Manage your expenses. While you want to avoid carrying debt, you may find it necessary to incur some debt, especially when getting started.
For example, you will need to invest in marketing materials to show the world you are open for business and looking for clients, customers or patients. Using swipe and deploy marketing systems proven to work will help you prevent costly mistakes and help you feel confident about getting a return on your investment. (A great place to start is to use the marketing systems found in Magnetic Marketing, our number one recommended resource by GKIC members.)
If you need to incur debt, don’t take on more debt than you think you can reasonably pay off. The key is to manage your debts by paying on time so that you avoid additional charges, using the lowest interest rate credit cards or loans possible, paying off debts as soon as possible and only incurring debts that are absolutely necessary.
4) Use financial management tools. Keeping track of expenses, income, invoices and past due invoices, estimated taxes, etc. can feel daunting at times, especially if you’re a new business owner. However, not keeping track of these can cause your business to fail or even put you in hot water legally.
Fortunately, there are financial management tools you can use that will make this much easier and require a minimal amount of your time and effort. Most are inexpensive and some are even free. A few to check out are Zoho, Freshbooks, and Get Harvest. Each has varying features and track things like your time, invoices, and expenses. Some you can set up things such as automatic invoice reminders or scan receipts in your phone to create automatic expense reports.
5) Put money aside every time you make a deposit. Dan Kennedy discusses setting a percentage of your income aside for both savings and charitable donations each time you get paid in his book, No B.S. Wealth Attraction in the New Economy. There are multiple reasons for doing this. The obvious reasons are that you have money “for a rainy day” and you get into the habit of saving. But even more important are the psychological benefits you get from this habit. Read more about this and Dan Kennedy’s “90-Day Experiment” in chapter 14 of No B.S. Wealth Attraction For Entrepreneurs
6) Track whether you are “on schedule.” Dan Kennedy suggests you track day by day whether or not you are on schedule to hit your income and wealth targets for the week, month, quarter and year. By assessing where you are frequently, you have an opportunity to correct when you fall behind. If you wait until July to see if you are on schedule to hit your financial goals, you may already be too late to correct your course to reach your financial goals.
7) Plan for your retirement. There is no retirement funded by someone else when you are a small business owner. That means you are entirely responsible for your retirement. On the flip side, setting up a retirement plan can also help you shelter your business profit. In the U.S. the two most common self-employment retirement plans are a Simplified Employee Pension plan (SEP) and Keogh plan.
In 2013, in either one, you can put in up to twenty-five percent of your net earnings or fifty-one thousand dollars (whichever is smaller) from your self-employment income. Like an IRA you can deduct this money off the top of your income, which gives you a big tax savings.
Compare that to an IRA with a cap of $5000 (or $6000 if you are 50 or older) and you can easily see the advantage of the SEP and Keogh plans.
Of course these are just a couple of options and I am not a financial advisor, so I’d advise you to
seek professional counsel to ensure you set up the best plan for you. The point is to set up a retirement plan and start saving immediately.
Integrating these tips will help you get your financial house in order making the financial end of your business more profitable and less stressful.
NOTE: Do You Want To Discover The 8 Steps To Growing Your Business By 25% to 75% in Just 48 Hours?
Then come to one of GKIC’s Fast Implementation Boot Camps where you’ll walk away with the blueprint in hand of what you need to do to grow your business and see results almost immediately! This event is totally FREE to GKIC Insider’s Circle Members. Simply go to www.dankennedy.com/bootcamp to reserve your spot now.
Not a member? Take GKIC’s FREE Trial Membership by going to www.dankennedy.com/incrediblegift now and get access to thousands and money-making strategies, this FREE two day workshop and best of all…full access to the GKIC Insiders Circle area online.