The Secret to Financial Success: Living with Inconsistent Income
In business, it can be difficult to budget with inconsistent income. For small business owners, this can be a daunting task. How do we know how much money we need when we’re still growing and cannot clearly predict our expenses? One needs to have an idea of what they regularly spend in their business to in order to insure the lights stay on and the bills are paid.
Listing monthly bills not only makes budgeting easier, it frees up mental capital so you can confidently move forward in your business without the looming fear of not having enough cash for a rainy day. Saving for months where you know income will be less is crucial to the survival of your growing business. Paying off existing debt during the months where you make more than you need is an excellent way to decrease the debits during your slower months. Additionally, reducing monthly expenses early, can free up more cash to invest & save for unexpected future expenses. This can be done by paying annual subscriptions instead of paying month-to-month.
A great free online resource for personal and business spending is MINT. It is an online service and app that allows people and small businesses to track their spending & income. By linking with your credit –cards and banking accounts, MINT allows you to see all your itemized spending, set budgets, goals, and see overall trends. Reconciling this data with your personal ledger is excellent option for those of you who do not see the need for a paid accounting service at this juncture in your business.
Dave Ramsey also has a free tool called Budget Lite, which allows you to input your income and expenses to see if you’re living within your means. Each month you should spend every penny on paper before the month begins. The ultimate goal for those who follow Dave Ramsey's ideology is to become debt free. While this might seem like a unattainable goal right out of the gate, I believe it should be on your both your short and long term goal lists for both your business and your personal life.
LEARNVEST & PERSONAL CAPITAL are both paid online financial planning companies that offer much the same thing as MINT, but offer expert advice and support. There are a number of services like these out there. Do your research and find one that best fits your needs and your personal investment goals.
Throughout the early stages of your financial planning, I believe it is important to give yourself some grace. Allow yourself three to four months to get things down just right. Your budget and your projections are not always going to be spot on; that is why saving will become such a crucial part of your monthly plan for continued success.
There are several options out there for small businesses owners to better track their finances. Some, like Xero, come with their own mobile apps for entrepreneurs on the go! I also suggest looking at Quickbooks Online. A local ProAdvisor would be happy to get you started.
Lastly, having separate accounts for not only personal spending but also for your businesses is a necessity in trying to track your finances. Ideally, you should have a separate checking and savings for personal life as well as your small business. Everyone’s business operates differently; that is why it is important to create a system that works for you. Paying yourself in an LLC is different than an S-CORP or partnership. Understanding these differences will help you in creating a system that meets both your personal and professional needs. I recommend having an accountant that knows your business inside and out along with a financial advisor who can personally assist you in planning for your future.
Financial Success isn’t a guarantee when following these tips, however, spending and earning – debits and credits – are the terms small business owners must understand in order to manage their business well. “A budget is telling your money where to go instead of wondering where it went." Having a set zero based-budget and a financial plan are just part of a strong foundation to grow and expand your business strategically.