Ah money, that lovely thing! Did you know that even when you think you have none to manage, how you manage money determines whether you’re likely to get more (or not)?
It is called cash FLOW for a reason – it is designed to flow in and out of your business, and so the process of financial management needs to focus on managing that flow of money.
In this 101 Guide, we’re going to start with the basics…
1. Take personal responsibility
You may have a partner or accountant who manages your finances – and it seems easier and more fun to leave it all to them because they’re good at it and you’re not.
You may however notice that people who you might call “bad with money” do this frequently…they abdicate responsibility for managing their finances and never step up.
If that’s you and you want to make more, have more, spend more and see more money, then you are going to have to step up.
Make it your responsibility to know where you are at all times, to be conscious of how the money is managed and to learn how to do this.
If someone else does this for you, you’re lucky – you have a teacher right there to teach you. Learn from them.
Top Tip: Try You Need A Budget – it’s not just brilliant software but they have a wonderful (and effective) approach and email course to help you manage your money.
2. Get Clarity (and Maintain It)
If your approach to your finances is to bury your head in the sand and pretend all is rosy, STOP right now! You need clarity.
Having a full and clear picture of where you stand financially is imperative if you are ever going to heal your relationship with money and start making more of it.
Get clear – check your bank balances and credit card balances now and give yourself the full picture so you know what you’re starting with and where you want to go from here.
Do you dread checking your bank accounts? Inwardly clenching whenever you have to? Use EFT to stop this emotional response.
Cultivate the habit of checking your balances at least weekly so that you always have a sense of your financial landscape.
3. Make friends with money
Do you have a tricky relationship with money? Maybe a legacy of childhood learnings from your parents (frugality, money being bad etc. etc.). If so, start here…
Money is your friend; it is nothing more than a currency (energy). Any negative associations you have with it are down to you, not it.
Here’s an exercise to do which makes many people very uncomfortable at first, until you get comfy and realise that money is your friend…
1. Think about how much you earn per month right now. Are you happy with it? Are you comfortable with it?
2. Think about how much you’d like to earn per month. Would you be comfortable with that? Can you imagine earning that much money? (Really and truly imagine it, I mean).
3. Take the figure above and double it (or triple it!), Are you comfortable earning that? Can you imagine it?
If your response is, “No way – I can’t even imagine earning that” – then that is precisely what is likely to happen. There’s no way you’ll earn that.
The point here is to make friends with earning money – to get comfortable with it, and to feel comfortable about it. Try it – it makes all the difference.
4. Structure your bank accounts for optimal flow
The one area many illustrators neglect to structure well is their banking and bank accounts.
Any accountant will tell you to keep your business and personal finances separately but very few people do it. Pay close attention: It is a MUST do.
Set up a separate bank account for your business (it doesn’t have to strictly be a “business account”, it can be another current/savings account – current is better if you want to easily make payments from it) and use that and only that to receive any money and pay any expenses related to your business.
This might be a faff to sort out – especially if you get into the realm of having to move direct debits and standing orders around – but it is worth it in the long term.
Not only is it simpler to do your accounts every year, by separating your business finances from your personal transactions it also gives you a clarity about your business finances you may well never have had before.
5. Pay yourself regularly
Alongside restructuring your bank accounts, this goes down as one of the other most important financial practices you can cultivate as an entrepreneur.
Set a schedule to pay yourself a salary – as an employee of your business – and stick to it.
Whether it’s weekly, fortnightly or monthly – pay yourself a salary. It doesn’t matter if sometimes that’s only £5 (if that’s all you’ve made), still pay it and log it in your records.
Don’t fall into the trap of just paying yourself whenever, whatever as the money comes into your business…
This is one thing that separates successful, profitable business owners from those who only ever get by.
This is so important because it acknowledges the fact that you play two separate roles when it comes to money management:
- As the steward of your business finances and therefore the CFO
- As the manager of your personal finances
Paying yourself a salary helps you keep these 2 roles separate: You manage the business’s money as its CFO and you manage the money your business pays you as you would as an employee of any other company.
This may seem strange, complicated or overkill to some of you but believe me it is absolutely vital if you want to maintain the flow of money and cultivate good money management habits as an entrepreneur, try it for a while and then tell me it doesn’t work.
6. Record Your Money Transactions Religiously
Logging your transactions daily (what comes in and what goes out) on your spreadsheet or in your tool of choice is an excellent habit to get into…
– and one that will save you hours and hours of hassle and headache when tax return time comes.
Top Tip: Log your daily expenses in your spreadsheet under the tax buckets/categories used on your tax return – this will save you spending hours having to classify them come tax return time.
Would you like to move beyond the story of the starving artist?
Cultivating your relationship with money to become someone who is ‘good with money’ (earning and managing it well) is a great place to start. We hope this helps…