Solopreneur money management includes many aspects – how much to plow into business, how to manage money through business cycles, how much to save for the rainy day, and how to cover yourself with insurance protection (which you won’t get as you did in a 9-5 job). Money is a tricky issue for solopreneurs because one thing you’ll never see is steady income. There will be ups and downs and unless you shore up enough during the good times, you won’t be able to handle the low times. Poor financial management also leads to many of the stresses and burnout that solopreneurs face. It pays to learn some good tips from those who have learned the art of savvy money management by going through its testing times.
- Financial tracking seldom gets the importance it deserves from busy solopreneurs
- Always use a business bank account and apply for a business credit card
- Millions of solopreneurs are now using crowdfunding as digital tip jar equivalents
- Do yourself a favor and save up at least three to six monthâs worth of expenses
- Cut those extra expenses and find joy in the many alternative options you have now
- Try to diversify into different revenue streams for your business to hedge your bets
- Don’t ever think your solopreneur business is too small to need insurance
- Your business and you are separate entities – work at the business for a salary
- Even if you’re a finance dunce learn how to align your revenue and business goals
- Expenditure-tracking tools help get a better picture of where you stand financially
- Taking profit first helps focus more on your goals, priorities, and expenses
- At the heart of every successful business is the ability to budget with smartness
- Investment in financial education produces the best ROI for any business
- Finance-help tools are free or reasonably priced – good for the bootstrapping
- Smart budgeting and financial savvy are very important in hard economic times
- Calculate money needs to break even in life and business, including emergency funds
- Change your perception about your business finance to change your fortunes
- Save big bucks on essentials by ignoring big brands and buying âno nameâ products
VIDEO: Gabe Nelson, in this sterling video, offers a glimpse of “3 Smart Money Moves Solopreneurs Can Make Today” (Must watch: 6:36 minutes)
Gabe understands the complexity of monthly cash flows and the want to make the ârightâ decisions for your family. In this video, he shares how to manage your cash flow, ave money when you’re self-employed, pay down debt, fund investment accounts, and how to make pivots along the way. A great watch for those of us who need to understand the mechanics of money better.
1. Financial tracking seldom gets the importance it deserves from busy solopreneurs
Yash Raj Agrawal in the article “6 Account/Finance Management Tips For Solopreneurs”:
“Tracking your business expenditures is crucial to understand the profit margin and cash flow. However, financial tracking seldom gets the importance it deserves from solopreneurs.
In the words of Spencer Barclay, the founder and CEO of Savology, “Far too many solopreneurs will set up a spreadsheet for tracking their expenses, but once they get involved in the daily grind, they end up never using it. The result is that they have no idea where their money is going.” For solopreneurs, this can lead to overspending or missing key deductions during taxation.
To avoid such scenarios, it is better to keep track of each business transaction, either manually or through bookkeeping applications that track and manage finances and ledgers.
This reduces the task of making manual changes after every transaction, reducing human errors, and giving you a 360-degree visibility of cash inflow and expenses.â
2. Always use a business bank account and apply for a business credit card
Laura Adams in the article “The 6 Best Ways for Solopreneurs to Manage their Books”:
“To keep your business and personal finances completely separate, open a dedicated business bank account. If your business is incorporated (such as an S corp or LLC), you must have separate accounts to legally distinguish your business and personal finances. Remember that the purpose of incorporating is to create an entirely separate entity from yourself. Youâll need a separate business bank account where you can deposit checks made payable to your business.
If your business name is the same as your personal name, you could likely cash business checks or deposit them into your personal account. And regardless of your business-entity type or name, you can pay business bills and expenses from a personal checking account and still claim them as a business-tax deduction. But these actions certainly muddy up your financial waters. So even if you could avoid having a business bank account, itâs still a good idea to establish one.
Most business checking accounts offer a variety of ways to make payments, including debit cards, online bill pay and electronic transfers. However, depending on the amount and type of purchases you need to make, you may want to apply for a business credit card. Just like with a business bank account, a business credit card makes it easy to keep your business and personal finances separate.
You donât have to own a huge business or even incorporate to qualify for a business card â even part-time sole proprietors may be eligible. You can apply for a card even if your business is new and hasnât started earning revenue. However, if you do have income, thatâs a plus. Youâll likely need to estimate your anticipated spending on the card, which helps issuers determine the size of your credit line. If youâre not sure how much available credit youâll need, itâs better to estimate higher rather than lower.â
3. Millions of solopreneurs are now using crowdfunding as digital tip jar equivalents
Amy Anderson in the article “8 Keys to Money Management for New Solopreneursï»¿”:
“If you haven’t been on Patreon or Kickstarter lately, you might not know there’s a whole world of creators being supported by their fans, friends, and peers to do what they love.
Crowdfunding isn’t just for startups or charities anymore. From musicians, to techy entrepreneurs and even podcasters, millions of people are giving and receiving support through these digital tip jar equivalents.
Crowdfunding is perfect for completing a big project when you don’t have the time to take your eye off the money ball with clients.
By giving you a little income to offset the time you’re spending on your passion project, crowdfunding allows you the latitude to take risks in your business without the support of one large client account. Instead, multiple people buy in for as a little as $1 and up to $500 a month to support your work.”
4. Do yourself a favor and save up at least three to six monthâs worth of expenses
Jamie Johnson in the article “8 Personal Finance Tips for Solopreneurs”:
“Regardless of the type of business you run, youâre going to have good months and youâre going to have bad months. And during the good months, it can be really tempting to spend all the extra money you make. (Been there, done that!)
But do yourself a favor and save up at least three to six monthâs worth of expenses. These include housing, groceries, utilities, transportation â¦ and not to forget insurance, which is a prudent provision that offers immense peace of mind. Things like housing and utilities should be simple to measure, as these expenses are typically set up on a fixed payment schedule, meaning you pay the same amount each month. Othre expenses that are not fixed can be guesstimated.
One of the best finance tips for business owners is to save for a rainy day; in other words, put money aside for emergencies, because you never know what the future may hold for you or your business.
In my experience, it will save you so many headaches down the road. There is literally nothing more stressful than starting the month knowing you donât have enough money to pay your bills. Having an emergency fund will allow you to keep a clear head and keep making the best decisions for your business. If you need help saving up the money, maybe you need to explore earning some extra money instead.”
5. Cut those extra expenses and find joy in the many alternative options you have now
Jeanna Barrett in the article “6 Tips For Maximizing Your Budget As A Solopreneur”:
“There are many options nowadays to find alternatives to things you enjoyâ¦ For example, when I first launched my business and went out on my own, I cut my $120-a-month gym membership and signed up for at-home fitness training from people like CSatt Fitness, Jillian Michaels and Kayla Itsines. The latter two both have apps, so you can build your own at-home training program and save a lot of money on a gym membership.
Hereâs another easy way to cut extra expenses â cancel your overly expensive cable subscription! Who needs cable when you can watch Netflix or Hulu for a fraction of the cost? You can also watch free movies on Amazon Prime if youâre a Prime member.
In addition, do yourself a favor and download the apps, Billy and Truebill on your smartphone. Billy provides an easy way to track your fixed costs, like subscriptions or bills. Billy allows you to know how much youâre spending on each account every month (scary!).
Truebill helps you save money on all of your subscriptions. The app automatically scans your online statements and identifies your active subscriptions. Youâll receive a monthly report that flags any changes to your subscription fees.”
6. Try to diversify into different revenue streams for your business to hedge your bets
Sarah Cantu in the article “5 Money Management Tips for Solopreneurs”:
“For many people, solopreneurship started as, or still is, a side project used to earn extra money while working full-time. The âside hustleâ is an example of diversified cash flow, or having multiple sources of income. If one of these sources of income were to drop out, people with side hustles would still be able to continue making money.
Just like you can create a diverse portfolio of income for your personal life, you should try to diversify the revenue streams for your business to hedge your bets. This will help your company stay afloat in case one of your revenue streams is no longer earning money or starts operating at a loss.
For example, letâs say you run a career coaching business. Your primary âproductâ is client sessions. However, if you want to start adding new sources of revenue, you might think about creating content that only paying members can access. Or you can sell DIY workbooks to people who want to work with you but canât afford weekly sessions.
Launching new products isnât the only way to diversify your revenue streams. We love this example: making your website/business more accessible. Making your business accessible is not only the right (and often legally required) thing to do, it opens up new customer segments who may have previously not been able to use your services. However you choose to diversify your revenue streams, finding new ways for your business to make money is never a bad idea. “
7. Don’t ever think your solopreneur business is too small to need insurance
Russell Rivera in the article “Things Solopreneurs Should Do With Their Money”:
“You may think your business is too small to need insurance, but even solopreneurs could benefit from having protection against common business mishaps.
Look into getting general liability insurance to protect you against property damage or injury involving a third party, as well as libel, slander, trademark and copyright infringement. Even if you are working out of a spare room at home, it is still a good idea to get commercial property insurance.
And if you offer professional services, you may also need to get professional liability insurance (also known as errors and omissions insurance) to cover legal expenses in case you are sued for a problem with your work.
Overall, being a solopreneur can be risky business, but also can be immensely rewarding as we are in greater control of our time and resources. But these seven tips above can help make your journey more financially successful and rewarding. “
8. Your business and you are separate entities – work at the business for a salary
Divya Agrawal in the article “The Critical Case of Money Management for Solopreneurs & Freelancers”:
“My business is an entity and I am a separate entity. I work at my business. I draw a salary. I can’t use the business bank card (wish I had a better word for this!) at shopping centers because my business doesn’t go shopping for clothes!! I can’t draw money from the ATM because then I have nothing to show for where I spent it.
So here’s what I do – I decide what ‘salary’ I get paid every month and I draw that from the account on the same date every month (very HARD to do when you have access to the damned account but let’s practice self-control). Now, this salary is only for my personal expenses/indulgence.
What all I draw from the bank account …
- Office expenses (rent, new equipment costs, equipment damage/repair costs, electricity bill, accessories and furniture)
- Operational expenses (LinkedIn premium, Canva Pro, Calendly, Loom, Otter.ai, New Zenler, Active Campaign and other tools I use to run/manage my business)
- Coaching/training expenses (business mentors, online courses, programs)
- Networking fees for events, etc, plus any local or international travel that you do for business purposes
Now, what happens is when you draw a consistent salary from your account, your lifestyle can be consistent. Of course, you need to earn consistently to support that, but if your income is high one month and lower the next, it doesn’t directly affect your lifestyle.”
9. Even if you’re a finance dunce learn how to align your revenue and business goals
Lisette Sutherland in the article “4 Ways To Align Your Financial Goals As A Solopreneur”:
“I want to share with you the systems Iâve put in place as a finance dunce that have helped me align my revenue and business goals and allowed me to run a successful global company.
Money Monday: I decided to review my finances every week. I created a checklist of things that would help keep my mind at ease about how good I was doing financially. This checklist helps make sure that nothing falls through the cracks.
Sales Tip Tuesday: Something else I had to learn was how to sell. Iâm someone who hates to talk on the phone. For years, I tried to sell without picking up the phone. And it kind of worked. But I knew I could do better so I reach out to a sales managers for a few tips.
Wealthy Wednesday: The Revenue Growth Habit (named after the famous book) is all about doing 15 minutes of focused and targeted work every day to bring in revenue. This made me laser focused with my marketing activities. I write down what my daily habits will be for the week and then I review which ones were successful from the previous week.
Experimental Thursday: I use the Toyota Kata method of defining experiments, running tests, and then revising those experiments until Ireach my goals. This process of focused experimentation, in combination with the revenue growth habits has been a game changer.”
10. Expenditure-tracking tools help get a better picture of where you stand financially
Erika Anne Ledesma in the article “Money-Saving Tips and Tools for Solopreneurs”:
“To help you keep your business and personal budget under control, use expenditure-tracking tools such as Mint, Moneytrackinâ, and SavvyMoney. These money saviors can help you get a better picture of where you stand financially, including your credit score.
These tools allow you to track not only business-related expenditures, but also mortgages, loans, and other financial features. You can also add invoices, receive advice on economical spending, and even check out loan offers.
There are also online solutions that enable you to automate your savings, so that when the money comes in, it automatically goes to a savings account, insurance, or an investment you have set up.
Itâs easy to freak out when the numbers arenât adding up, but stay calm. Most solo business ventures start out this way, but if you follow the tips and use the tools mentioned here, youâll soon be able to get your business where you want it to be. Create a rational budget, make smart expenditure choices, and manage your time efficiently to be in control of your finances and save money, and ultimately make your business grow.”
11. Taking profit first helps focus more on your goals, priorities, and expenses
Travis Gatzemeier in the article “Cash Flow Management For Solopreneurs”:
“A cash flow system doesnât have to be complex; it just needs to work. Simplicity is key. In our experience, one of the most simple cash flow systems to implement is Profit First. This concept was originally introduced in the book Profit First by Mike Michalowicz. If you havenât read the book, itâs a highly recommended read.
The logic of taking profit first means youâll focus more on your goals, priorities, and expenses. Then, youâll quickly realize how profitable your business is, how lean it can run, and spot opportunities. Here is a quick summary of the idea behind the profit first method:
What a solopreneurs cash flow usually looks likeâ¦”Income â Expenses = Profit” (for most solopreneurs, this equals pay). The problem with this equation is that you pay yourself with âwhatâs left.â Like managing personal finances, you want to pay yourself first. In other words, build in business profit first, and work from there.
The profit-first system looks like this â¦”Income â Profit = Expenses”. In this equation, âwhatâs leftâ is your expenses. This locks in profit and pushes more focus on goals, priorities, and expenses. Resulting in a better understanding of your businessâs financial health.”
12. At the heart of every successful business is the ability to budget with smartness
Ron Weber in the article “5 Money Management Skills Every Small-Business Owner Needs”:
“At the heart of every successful business is the ability to budget. Understanding budgeting basics, including how much money youâre making and spending each month, is absolutely essential for assessing the health of your business.
On the most basic level, monthly budgeting helps you know if youâre making a profit â and if so, how much. It also helps to track client spending habits from month to month and year to year.
Budgeting is also essential for measuring the impact of your business decisions. If youâre not carefully tracking your finances, thereâs no way to know whether a prior decision resulted in a profit or if it had a negative impact on your bottom line.
Regular budgeting helps you track expenses over time, so you can identify wasteful spending and trim costs to increase your profit margins. Alternatively, you can look at business costs, cash flow and cash holdings to determine whether you have sufficient cash on hand to expand your business or whether you should start thinking about taking out a loan to reach your goals. “
13. Investment in financial education produces the best ROI for any business
Madeleine Keller in the article “Why Financial Education is One of the Best Investments”:
“When we evaluate whether an investment is worth making, one of the most important considerations is what type of return it offers. Financial education boasts an excellent return.
When we hear the phrase âreturn on investmentâ, this is the first thing most of us probably think of. Financial education does indeed have a great financial return, especially in the longterm. No matter what type of financial education you pursue, if you implement what you learn, you will increase your longterm wealth. The knowledge you apply to your financial life will change and improve how you handle money. You may find yourself more capable of making decisions around saving, spending, and investing. Over time this can have compounding positive effects.
The skills you learn when you invest in financial education will always be relevant to your life. As far as I know, most of us need to manage our money throughout the course of our lives. If you are a business owner, the money skills you acquire will be helpful not only to your business, but may also be helpful to your business peers and any people you want to hire or mentor in the future. Money skills really do keep on giving!
The peace of mind and clarity that come along with getting the financial skills you need to manage your money well are absolutely amazing. Iâve witnessed many clients experience a great reduction in their stress levels after a few sessions together. Money is one of the leading causes of stress in the U.S. Especially for those managing debt, gaining the financial skills to recover and surmount it can be deeply emotionally healing.”
14. Finance-help tools are free or reasonably priced – good for the bootstrapping
Margarita Hakobyan in the article “7 Money Saving Tools for Solopreneurs You Absolutely Need”:
“When youâre a solopreneur, you love to DIY, but there are only so many hours in the day. You may find yourself struggling to get everything done, especially as you get started. You want to look for external help, but who has the time, or the money! These tools are either free or have reasonable costs, making them perfect for the bootstrapping freelancer or solopreneur on the go.
If you want to successfully manage your business, you need to have a great budget. You can track your anticipated costs and income on paper, but being able to track your income and expenses live is incredibly helpful in keeping you honest and on budget. Plus, being aware of your expenses lets you make sure you have sufficient income, plan for capital expenditures, and look for places where your business might be leaking money that could otherwise be helping your business grow. Look at: Mint and EveryDollar.
Even if youâre running your business solo, at some point you will need to track time, either your own for a contract, or freelancers for their contract with you. You can track those hours on paper and invoice them, but using a time tracking app lets you generate reports and include them with your invoice to verify the hours you worked. This helps create transparency with your clients and keeps professional relationships profession. Try: Timely, or Harvest.
Many of these tools start off with free or low cost-tiers, then offer more benefits as you increase in price. Generally, the features available at higher tiers are only useful to businesses that have a large customer base, handle multiple employees, or have a significant revenue. If youâre just starting out, thereâs no need to assume you need to buy the premium version of everything; you can nearly always upgrade later.”
15. Smart budgeting and financial savvy are very important in hard economic times
Flavia Berys in the article “7 Smart Tips for Budgeting Your Money During A Crisis”:
“We live in tough times nowadays. The economy is on a recess. Jobs are lost. Sometimes it comes and it goes. Those who land a job these days are lucky. For others who canât find work, they have it worse. Financial readiness is key. Wave a temporary goodbye to all the luxuries you have for here are simple yet effective ways on how to budget and survive for more tough times ahead.
Look for extra income opportunities. Once youâve cut all your costly luxuries, spend your free time looking for a job and work in it. It can be menial work but as long as it gives you money then go for it. You can even opt to sell some of your homemade products online. What matters is you wonât go hungry and keep a roof above your head.
Make a budget plan. Do the math. How much money are you willing to spend monthly enough to survive? How much will you keep for emergencies? How much money is your aim for a monthly deposit? Once you answer all of these questions, youâll be 10 steps ahead of surviving compared to those who mindlessly spend. Use a budgeting app.
Eliminate your debt and avoid future ones. Do you have an existing credit card debt? The interest rates will eat up a portion of your monthly budget. It is best to pay them all now. If you canât do that at the moment, try to haggle your debtee for a little weight of the financial burden taken. You can also transfer your existing credit into a creditor with lower interest rates. When youâre free from debt, prevent yourself from making new ones.”
16. Calculate money needs to break even in life and business, including emergency funds
Mike Johnston in the article “5 Budgeting and Cash Flow Tips for New Entrepreneurs and Solopreneurs”:
“First things first, you have to set a financial foundation and know exactly what it takes to break even every month in your personal and professional life. You should calculate this even before you set out to launch your business, so that you can pick the right time to kick-start your entrepreneurial journey, consider financing options, and create a sound business plan that will ensure you stay afloat. However, regardless of when you decide to do this, itâs important to know what it takes to avoid debt.
Start with your personal finances. Your goal is to know how much money you need to break even every month, and whether you can afford to quit your job and focus solely on your new business. List all personal expenses, cut out the things you donât need, and compare the final number with your current earnings.
You also need to calculate your break-even number for your business. Preferably, your business will have minimal overhead and operational expenses, like a digital company or a service-based business. Regardless, this number will tell you how many customers or clients you need every month, and what type of financing option you should go for, depending on your expenses and earning potential.
To further lower your startup costs and solidify your financial position, you have to be prepared for the unexpected. Having an emergency fund will give you a financial safety net that you can use to bail your business out of a tough spot, invest in a great opportunity, or bridge the financial gap until youâre able to pay yourself a salary. Be sure to set aside a chunk of your earnings every month for your emergency fund, and one day this cash reserve might just propel your business to new heights of success.”
17. Change your perception about your business finance to change your fortunes
Ceylan Boyce in the article “Why Turning Yourself Into A Great Bookkeeper Kills Your Business Growth”:
“Every tax system and accounting practice gives us a retrospective perspective of our businesses. Filing your tax returns shows you what has happened in the past year, bookkeeping shows you how much you have already spent, your bank account shows you what has happened till now and where you are at now.
This perception of finances gives a false sense of security about your business. The retrospective data that you have can help you a lot, but unless you change your perception from looking at the past to looking towards the future, you canât use this data to empower your decisions. So, change your money perception to a prospective one.
What do I mean by prospective perception of finances? Well, you need to take your bookkeeper hat off and put a financial director hat on! An FD approves future expenses, contributes to the direction of the company by giving informed advice on the future finance of the business. A bookkeeper canât do any of this.
You are the owner of your business; you are the vision setter and as a solopreneur or micro-business owner you will take your business to its next level (whatever this means to you). All this is about the future, which means you need to know that will happen financially in the future. Forecasting regularly and checking your income regularly, your expenses, future hires or investments is the only way that will empower you to make decisions that are bold while keeping your ârisk anxietyâ at bay.”
18. Save big bucks on essentials by ignoring big brands and buying âno nameâ products
Sandra Booker in the article “Money Hacks For Solopreneurs”:
“Avoid brand name products. This money hack can feel very thrifty, but in reality, it just makes sense.
As you may know, many of the âno brandâ alternatives that you find in stores are manufactured in the same facilities as their branded counterparts. The only difference between them (besides the price) is the brand on the box. The same goes for office supplies and even certain equipment.
As a solopreneur, you can save big bucks on office essentials by ignoring the big brands and buying âno nameâ products instead. You can also carry this over into your personal life because, letâs face it, as a solopreneur, you are your business. For example, instead of buying a $4+ coffee every morning at Starbucks, invest in a great quality coffee maker. Youâll âpay it offâ in no time!
When you do need to buy a brand name product, as we mentioned earlier, check with Ebates first to see if you can get moneyback on that purchase when you buy it online.”
So What Are Your Thoughts? Do Share!
This post is incomplete without your input. The community of solopreneurs would feel galvanized to hear from you … so do share your thoughts on this topic with us, in the comments field below this post.
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