A lot can change in a year. Case in point: I kicked off 2018 feeling like a total failure.
After growing my business to six figures in 2016, I backslid in 2017. Revenue dipped. Expenses soared.
How could I, a personal finance writer, have so much trouble managing the money in my own business? Long story short, I learned that managing money as a small business owner presents a unique set of financial challenges that extend far beyond the basics of personal finance. I’ve since course-corrected, and hit the latter end of 2018 on track to exceed a quarter million dollars in revenue for the year.
Here are some of the most important things I’ve learned in the process.
1. Revenue does not equal income.
It’s easy to look at a revenue number like $250,000 and think you’ve got more than enough money to spend freely, but remember, your business revenue is not the same as your personal income.
As you grow your business, consider paying yourself a regular salary—one that supports your lifestyle while simultaneously laying the foundation for your financial future. With that money and your taxes set aside, you’ll know how much you can truly afford to reinvest in your business.
2. You are your own HR department.
The responsibilities of running your own business extend far beyond the basics of whatever service you provide your clients or customers. You also have to execute and oversee all the other aspects of business operations—from accounting to HR. These are the necessary realities you’ll need to tackle head on if you want to grow and sustain your own business for the long term.
3. Your business needs its own emergency fund.
If you’re familiar with the basics of personal finance, you know that having an emergency fund with three to six months of living expenses to cover the unexpected is essential. Having a similar savings buffer for your business can be equally valuable to fund surprise costs and offer a cash cushion when client or customer payments take longer than anticipated.
4. Cash flow is king.
It doesn’t matter how many thousands of dollars you’ve invoiced if, when it comes time to pay your bills, none of those dollars are actually in your account.
To ease some of the stress of waiting on those big deposits to hit my bank account, I’ve found it helps to have some smaller, more consistent revenue sources to serve as a cash flow base. If I know I’m going to earn a certain amount on a consistent basis, it gives me the security of cash flow to pursue those bigger paydays.
5. You can always earn more.
Speaking of bigger paydays, don’t underestimate the true potential of your business revenue. Remember, earning more doesn’t always have to be connected to doing more. Sometimes, it’s about shifting your offering or your market.
So remember to regularly review your revenue opportunities and pivot as necessary to make sure you’re maximizing your earning potential.
This article originally appeared in the Spring 2019 issue of SUCCESS magazine.