Having a business mindset as a business owner means more than strategy, marketing, design, and all the traditional business components we think of. Read on for our three tips to practice financial self care for entrepreneurs.
As an entrepreneur, you have your work cut out for you. Entrepreneurs don’t have the same road that a salaried or wage-worker has. That’s because as an entrepreneur, you’ll be wearing all the hats at one point or another: CEO, President, CFO, Operations Director, Client Success Manager, Content Creator, Graphic Designer, you name it! And it can get stressful, REAL QUICK.
So we’re here to help you with one important piece of the puzzle: your business finances. Read on for our three tips on financial self care for entrepreneurs. Your mind needs to be on strategy mode as an entrepreneur; don’t keep it in the spaces (like your finances!) that you can automate.
1. Separate Your Business Income
The quickest way to making your life more difficult as an entrepreneur is to have all the money going in and coming out of the same account. You will be left with lots of different spreadsheets, lots of cross referencing, and lots of room for error. To avoid that, we recommend having five different accounts as a business owner:
- Income and Revenue
- Operating Expenses
- Owner’s Pay
By separating out your different revenue and expense buckets, you are getting more granular with exactly how you need to allocate your overall business revenue. It will also give you a more accurate measure of how your business is doing according to how much is required to keep it going.
The key here is to ensure that each account is only used for its designated purpose. The more you practice, the more accurate your allocations will be month to month. This allocation through setting up different business accounts is key to the profit first model of business finances— because at the end of the day, we need to make sure you’re getting your cut for all the work you’re putting in!
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2. Build A Cash Reserve
In the same way that we encourge folks to build up an emergency fund as a personal finance must, every business owner should build up their own cash reserve. To be clear: your personal emergency fund should not operate as your business cash reserve. While your business goals are certainly related to your personal finance goals, it’s important that your business not be a deterrent in your personal finance goals. The last thing we want to see is a sacrifice to you or your family’s future financial stability to keep your business afloat.
Uses of a personal emergency fund include:
- Sudden car repair
- Emergency home maintenance
- Unexpected income freeze
- Traffic ticket
- Unexpected health expense
On the other hand, a business emergency fund can be used for:
- Maintaining your monthly burn (expense) rate should you have to cease operations / sales for a period
- A higher than expected tax bill
- Unplanned legal expenses
Like your personal emergency fund, you should build up your business emergency fund to whatever amount of money you need to keep it going each month. Get this number to 3 to 6 months’ worth. Remember: like all forms of self care, financial self care for entrepreneurs also means preparation in the present for our future selves.
3. Invest Your Profits
We should all be investing, period. As an entrepreneur and business owner, however, you now have access to a different set of investment accounts. And if you’re not using them, you’re missing out on yet another path to building wealth. Beside the traditional brokerage, you have access to:
- Solo 401(k)
- SEP IRA
- Simple IRA
Don’t let the high contribution limits of these plans scare you; your investment plan is unique. Read our deep dive into these 3 retiremeent account options for entrepreneurs to find out which is right for you.
Another way to look at investing is to invest in your business itself. While we will always center investing as a key path to building wealth, building a business is another, and the best way to build a profitable business is by continuing to strategically invest in the components of your business that will allow you to scale up (aka grow and expand your reach and your profits).
The Bottom Line On Financial Self Care For Entrepreneurs
Financial self care for entrepreneurs is key to success. The dedication, the strategy, the niche, the marketing, and all the other “business things” are important, but you will be creating an uphill battle for yourself if you do not automate and simplify the money coming in and going out of your business.
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