I’m about as un-mathematically minded as they come. Just the thought of balance sheets, invoices and bookkeeping brings me out in a cold sweat. So no-one is more surprised than me that today I’m writing an article about managing small business finances!
However, ever since starting the Green Room I’ve been emailed constantly by folks asking me if I could help them with their various money organisational woes. Well, all I can really say is that thank goodness I married a man who understands how all this stuff works because without him I’d probably be sobbing into a spreadsheet right about now.
Surprisingly though, I have actually learnt a few little titbits about managing the money side of things over the years. These tips are pretty simple and easy to implement, but I hope some of you will find them helpful.
1. Work out how much you need to survive
Figuring out how much you need to live on is lesson number one when it comes to setting your rates. You need a final number in mind to enable you to work backwards and calculate how much you need to charge for your product or services.
To do this, add up all your expenses. This should include everything from food, entertainment, clothes, rent and travel for yourself and the things you’ll need to keep your business ticking over like equipment, your website, marketing and insurance. You should also include a few luxuries like eating out every so often, because it’s not really going to be much fun being sat at home eating beans on toast every night because you’re not charging enough.
If you needed £30,000 a year to live on and run your business effectively. Next, work out how many clients you’d ideally like to work with annually and then divide the second number by the first. Say you wanted to work with 30 clients per year, that would mean you’d need each client to bring in £1000 each.
2. Pay yourself a wage
Something I realised quite early on is that I needed some boundaries which how much I was allowed to spend on myself each month. Before Rock n Roll Bride I was very much living payday to payday and was literally spending everything I earned (I’ve never been much of a saver!) So I knew that if I didn’t pay myself a wage that I’d probably end up having no money left to pay any business costs.
The other thing with paying yourself a consistent wage is that you’re less likely to go crazy in Topshop if you have an unusually lucrative month. Doing this is dangerous because if for some reason the following month is a bit leaner, then that extra money could have really come in handy.
This is especially important for people with very seasonal businesses, like those of us in the wedding industry. In the summer you might be working on lots of weddings which means lots of money coming in, but over the winter you’re going to struggle if you’ve spent all of that extra income and nobody is getting married!
It’s really all about BALANCE and a regular wage will help you achieve this. You’ll also be able to track what you’re spending on yourself much easier.
At the start of each month I go into our business account and take one lump sum to put into our joint account for bills, food and our mortgage and another in my own account for personal spending.
3. Never be tempted to ‘borrow’ money from your business
It can be very tempting, especially if your cash-flow isn’t as steady as you might hope, to ‘borrow’ money from your business to cover personal costs. This is a very dangerous habit to get into. Not only will this put your accounts in a right mess (and make doing your taxes a nightmare!) but could damage your business in the long run.
Always keep business and personal spending separate. At the very least have two independent accounts.
4. Save your taxes
In an ideal world we’d all sit down at the end of each week or month, work out how much we’d earned and calculate our taxes in a nice tidy spreadsheet. Wouldn’t it be wonderful for January to roll around and to not be in an awful panic?!
Of course none of us actually do this (despite our best intentions) but at the very least you should be saving your tax money.
Never, ever, ever get tempted to dip in and spend the money you need to pay your taxes because you’ll be completely stuck when you get your bill. If you need to, set up another bank account and transfer 30% or so of everything you earn into it each month so you don’t have a panic when the dreaded tax man comes knocking.
5. Reinvest in your business
My final piece of advice for keeping your small business finances in check would be to reinvest at every opportunity. Discovering that the more I spent on my business the less tax I had to pay was a revelation to me when I first started out!
Obviously, by investing in your business you can’t use that money in Topshop but reinvesting a portion of your profits back into the company, whether in equipment or services, means you’ll be helping it move forward and grow. Having a smaller tax bill at the end of the year is simply a happy consequence!
- Photography: FX Media