Running a business by yourself, as exciting as it is, doesn’t come without its challenges. It can be nebulous to learn how to budget expenses, figure out when to take a salary (and how much), and plan ahead when you don’t know what income in the coming months will look like. And you aren’t alone — Clutch reported that 61% of small businesses didn’t have a documented budget in 2018.
Since it’s a new year and a new us, I empower you to get ahold of your business and personal budgets this year with the following tips so you no longer feel at times like you’re flailing. You’ll feel more confident if you know what money is coming in, what money is going out, and if you can plan for the year ahead — even in the case of surprise expenses.
1. Create a “sinking fund.”
The standard solopreneur has a checking account, savings account, and perhaps invested money in other mediums, but there’s one fund that can make budgeting for big expenses easier: a “sinking fund.” Ashley Feinstein Gertsley, money coach and founder of the Fiscal Femme, defines it as a fund that will eventually “sink” or get spent. This is money you set aside for things like a midyear hire or a ticket to that big entrepreneurship conference.
“Decide how often and how much money to set aside to each sinking fund. If we have an idea of what something will cost, we can work backward,” Gertsley writes. This fund is completely in your hands — it’s up to you how long you have to save, how often you put away money, and how much you put away. But, it makes larger expenses easier to plan for, so you feel more in control when it’s time to make that purchase.
2. Where possible, create a subscription program or get clients on retainer.
Depending on your type of business, it may make sense for you to create offerings where clients hire you on retainer or you offer something on a subscription basis. This is especially important when you can never tell at the beginning of the month how many clients, transactions, or deals will come through. This uncertainty is the cause of a lot of anxiety and stress for solopreneurs.
Double Your Freelancing recommends adding bonuses to your typical services for retainer clients like monthly advisory calls, a private newsletter, or virtual training. That way, it makes more sense what they get as part of a package, which will help in the common rebuttal of, “Can’t I just hire you on a case-by-case basis when I need you?”
3. Create a foolproof method for tracking business expenses.
Do not make the mistake of thinking you’ll add up all your business-related expenses at the end of the year before you file your tax return. Instead, find easy ways to keep track as you go. I use an app where I can easily log my income and expenses (as well as take photos of receipts) so that I know where I stand at any point in the year. There are many software products out there that can assist you with exactly this.
Some of my friends keep a separate album on their phones for pictures of receipts, and they write a note on each receipt how the expense was business-related. Having all of this documented and organized ahead of your tax season will make the typically stressful process into a breeze.
4. Hire a CPA you really like.
It goes without saying that you should have an accountant — but I also recommend finding one that you really like. I was lucky enough to find one who’s around to answer any of my budget questions at any point in the year. It’s no secret that money and tax questions can feel intimidating, so having someone in your corner who can help you feel comfortable and in control is imperative.
If you don’t have an accessible relationship with your current CPA or you work once a year with one of the tax giants, ask around for recommendations. I found my CPA from an ecstatic referral from someone I trusted as both a friend and business owner. Post asking for recommendations in entrepreneurship or freelance Facebook groups if no one in your circle has a good recommendation.
Learning how to budget will ebb and flow throughout the course of your life, but these best practices will serve you indefinitely.