5 Smart Financial Tips for Small Business Owners

Have you ever found yourself surrounded by a pile of receipts? Your eyes glaze over as you stare at the numbers. And you realize they don’t quite add up the way you expected??

When this happens, it’s like a financial wake-up call. Because it’s that moment when you realize that understanding your business money is just as crucial as the products or services you’re so passionate about..

Let’s face it – managing money can be one of the trickiest parts of running a small business. But here’s the good news: it doesn’t have to be super complicated.

In this post, I’m going to walk you through five small business financial tips that you need to know. We’ll explore everything from the basics of budgeting to the power of diversification. And don’t worry – I’ll show you exactly how to apply these strategies to your own business plan.

By the end, you’ll be ready to tackle your finances with confidence (and maybe even a bit of excitement).

Ready to get your finances in order? Let’s get to it!

This post contains affiliate links, which means I receive a small commission if you make a purchase using this link. For more information, see my full disclaimer here.

Prefer to listen?

Check out this podcast episode: 5 Solopreneur Strategies for Smarter Money Management

1. Embrace the Art of Budgeting

Let’s kick things off with budgeting. I know, I know. The word “budget” might make you cringe. It could even bring up feelings of deprivation.

But what if I told you that a budget could be the most liberating thing you introduce to your business?

Why a Budget if Your Business’s Best Friend

I’ll be honest. I did not create a budget when I started my business. I was actually a couple of years in before I finally tackled that task. (It was like deciding to finally organize the junk drawer in my kitchen – necessary, but not something I was excited about doing.)

But here’s what happened. As I categorized my expenses and projected my income, something clicked. The fog lifted and I could see my business’ future clearly.

And – full transparency here – that future didn’t look great. My expenses were way too high as a percentage of revenue. That was my wake-up call. Something had to change..

Here’s the thing: creating a budget isn’t about restricting yourself; it’s about understanding your business’s financial flow.

It’s about making sure you have enough to:

Invest in those marketing campaigns that introduce your products to potential customers.
Cover all those software subscriptions that keep your operations smooth.
Pay yourself (yes, that’s important too!)

A solid budget helps you:

Predict cash flow
Prevent overspending
Avoid being blindsided by unexpected expenses

Creating Your Solopreneur Budget

Now, let’s get down to brass tacks and create a budget that works for you. Don’t worry if numbers aren’t your thing. I’ve broken it down into easy-to-follow steps that even the most number-averse business owner can handle.

Calculate your income: First things first. How much are you bringing in? Take a look at your past sales and don’t forget to factor in those seasonal ups and downs. My advice? Be conservative with your estimates. If you’ve got steady clients or consistent sales figures, that’s your starting point.
List your expenses: Every penny you spend to keep your business humming is an expense. This includes direct costs like inventory and indirect costs like internet service. And don’t forget to factor in variable expenses – these are business costs that fluctuate, like your ad spend or special seasonal offerings. And here’s a pro-tip: Don’t overlook those small expenses – they add up faster than you think!
Determine your profit: Income minus expenses equals profit. This is the money that you get to reinvest back into your business, save for a rainy day, or pay yourself for all your hard work.
Adjust as needed: Your budget should be a living document. As your business grows and changes, so will your budget. Make it a habit to revisit and adjust regularly. Trust me – this step will help you stay on track.

And here are some tips to stick to your budget once you’ve created it:

Use a budgeting tool. I have a spreadsheet-based system called The Ultimate Business Budget Toolkit that can help you plan your budget and stay on track. If you prefer an app, I recommend YouNeedaBudget, aka YNAB.
Regular reviews: Set a date with your budget. Maybe it’s every Friday morning (that’s what I do – I call it “Finance Friday”). Reviewing your budget regularly makes sure you’re on track and that you catch any issues before they become problems.
Be flexible: Sometimes, opportunities come up that require a little financial wiggle room. It’s okay to adjust your budget as long as it’s intentional and not just a whim. For example, I just found out about a great deal on an app that will help me do something I’ve been wanting to do for a while. This is a one-time deal that’s only available for the next couple of days. I didn’t have this purchase in my budget, because I didn’t know this deal was going to come up, but I’m probably going to go ahead and buy it. It will help me with something I’ve been wanting to do for awhile and it would be shortsighted to ignore this opportunity to grab the software.

So, just keep in mind that your budget is there to guide you, to keep you on track, and to help you make informed decisions that will ultimately grow your customer base and your business.

2. Invest in Growth

Now let’s talk about investing. Investing in your business is a bit like adding a new room to your house. Initially, it might seem like a big undertaking that requires a lot of effort and expense. But once it’s done, it not only adds value to your home but also enhances your living experience.

When to Spend Money to Make Money

You’ve probably heard the saying, “You have to spend money to make money, right?” But when is the right time to do that?

Well, let’s flesh out that analogy we just talked about – the one about adding a room onto your house.

So imagine your business as a cozy, well-loved house. It’s served you well, but you’re starting to feel a bit cramped. You need more space to grow, entertain, and thrive.

This is where strategic investing comes in. It’s like deciding to build that sunroom you’ve always wanted. Yes, it requires resources and planning, but the added space opens up new possibilities – a place to entertain more guests, relax, or even grow a little indoor garden. (I always need more space for houseplants, so now I really want a sunroom!)

In business terms, this means investing in areas that expand your capabilities, reach more customers, and ultimately increase your revenue.

Smart Investments for Solopreneurs

So, where should a savvy solopreneur focus their investment dollars?

Education and Training: This is like reinforcing the foundation of your house. Strengthening your knowledge base with a new course or training can solidify your business and prepare it for more substantial growth. But let me add a caveat here. You have to actually go through the training and implement what you learned. Course hoarding doesn’t help you. Buying courses that you don’t take is not a good investment.
Marketing: Think of this like sprucing up the outside of your house. Effective marketing strategies help in showcasing your brand to prospective customers, drawing them in with the promise of what’s inside.
Outsourcing: This is like hiring a landscaper or cleaning service. Outsourcing tasks like accounting or graphic design frees up your time so that you can focus on the core areas of your business growth. And in fact, hiring people for things like yard maintenance or cleaning your house can be good investments for solopreneurs. Those tasks are typically easy to outsource, and that frees up your time to spend on the business. Just food for thought.

So, let me share a personal experience. My best investment in 2023 was an Artificial Intelligence app called Marketing Magic. I’ve been using AI for a few years now, and it has really freed up a lot of time and mental space.

But one of the things I struggled with was creating good marketing copy, particularly for sales pages.

Marketing Magic promised to solve that problem, so I got in on the ground floor. It was a bit of a risk because I wasn’t sure how well it would work, and there was no money-back guarantee.

But it turned out to be a great investment. The app has continually been improved, and I use it every week, usually multiple times a week. I initially bought it for the sales page piece, but I’ve ended up using it for a lot of other things, like repurposing my podcast episodes, writing emails and social media posts, and so much more.

So it saves me a lot of time. It also saves my mental energy because I don’t have to dread writing sales pages anymore.

Investing in your business is about making wise, strategic decisions that not only add immediate value but also set the stage for future growth and success. It’s about understanding when and where to put your resources to expand your business’s potential, just like thoughtfully planning an addition to your home.

3. Cultivate Multiple Income Streams

Let’s move on to strategy #3: cultivate multiple income streams.

Because, let’s face it, relying on a single income stream is like walking on a tightrope without a safety net. Exciting? Maybe. Stomach-churning? Possibly. Risky? Definitely.

Don’t Put All Your Eggs in One Basket

I’ve always followed the philosophy of don’t put all your eggs in one basket.

I follow this for everything, but it’s especially important when it comes to your business. Think about what would happen if your primary source of income took an unexpected hit.

It’s something that so many people have seen, especially in the online world. Recently, bloggers have been going through a tough time with Google’s Helpful Content Update. A lot of blogs lost huge amounts of traffic pretty much overnight and if they were relying solely on ad revenue, then their income took a nosedive.

Diversifying your income streams is like having multiple safety nets beneath that tightrope. If one fails, you’ve got others to catch you.

Relying solely on one income stream can leave you vulnerable to industry shifts, economic downturns, or changes in customer preferences.

Diversification gives you a buffer against those uncertainties. It also opens up new avenues for growth and innovation.

Ideas for Diversifying Your Income

So, how can you create multiple streams of income? Here are a few ideas, both passive and active.

Passive Income Streams. Think of passive income as planting a garden that requires initial effort but then continues to provide vegetables with minimal upkeep. This could be in the form of digital products like printables or online courses, affiliate marketing, or even rental income if you have the resources for a real estate investment.
Then, there are Active Income Streams. These are more like cooking a meal. They require your active involvement to produce results. You could consider offering consulting services, taking on speaking engagements, or developing new products or services that align with your existing business but tap into a different customer base.

Active income streams are better if you need a cash influx right now. For example, you could offer a one-on-one service and start getting paid right away. Passive income streams often take a little time to build up.

So, take a minute to brainstorm. What skills, knowledge, or resources do you have that could be turned into an income stream? How can these be aligned with your current business model? Remember, the best opportunities often lie at the intersection of your interests, skills, and market demand.

Diversifying your income is not just about financial security; it’s about creating a robust, resilient business that can weather economic storms and capitalize on new opportunities.

4. Master the Art of Negotiation

Our fourth strategy is to master the art of negotiation. Negotiation isn’t just a business skill; it’s a life skill. Whether you’re asking for a late checkout at a hotel or haggling at a yard sale, you’re negotiating.

Negotiation as a Way of Life

Let me share a little story. Early in my career, back in my corporate days, I often found myself in talks with potential vendors. I handled the marketing for the company, so I had salespeople calling on me pretty much every day.

I remember one in particular. A local radio station pitched me an advertising package. The initial price they quoted was way out of my budget. Accepting the offer as is was out of the question. But instead of walking away, I came back with a counteroffer. I shared my budget and highlighted the potential for a long-term relationship. And guess what? We struck a deal that was beneficial for both of us. I got a package of radio spots at a price I could afford, and they got a long-term customer. I ended up doing business with them for years.

You’ve probably heard the phrase win-win. That’s what you want in a negotiation. Both parties have to feel like they’re getting value.

Negotiation Strategies That Work

Now, let’s talk about some practical negotiation strategies.

Know Your Worth: before you enter any negotiation, understand the value you bring to the table. This isn’t just about the financial aspect; consider the quality of your service, your reliability, and your brand.
Listen More Than You Speak: Good negotiators are great listeners. Understand the other party’s needs and constraints. This knowledge can help you tailor your proposal or counteroffer to create a win-win situation.
Be Prepared to Walk Away: Not all negotiations will end in your favor. And that’s okay. Being prepared to walk away is a powerful position. Know what your dealbreakers are going in and stick to them.
Practice, Practice, Practice: Negotiation is a skill, and that means you will get better if you practice. Try negotiating in everyday situations – maybe you’ll get a discount on a bulk purchase for your office or a better rate on a software subscription. Each experience builds your confidence and skills.

Negotiation skills are a powerful tool to add to your toolbox. They can open doors to new opportunities and new partnerships in addition to getting you better deals.

5. Plan for Taxes and Savings

Our fifth strategy is to plan for taxes and savings. This is not always the most exciting part of running a business (unless you’re a number nerd like me!), but it is essential.

Before we get into the details of the section, let me mention that I highly, highly recommend the book Profit First. I started following the Profit First strategy a few years ago – I can’t remember exactly when. But it has made a huge difference to my business, especially when it comes to being prepared for tax season.

The Inevitable: Taxes

You know that saying, “Nothing is certain except death and taxes?” Well, it’s true. Taxes have to be filed, and that means you need to plan for them.

So, I haven’t always been super-organized when it comes to my financial transactions. Let me rephrase that. I was organized; I just wasn’t always timely. I was that person who sorted through all my financial transactions the first week of April and ended up filing on April 15^th. So basically, I did a year’s worth of financial work in two weeks.

That is needlessly stressful, and I don’t want you to go through it. Taxes are a lot easier to manage if you’re proactive about staying on top of your financial transactions and paperwork.

So, here are some practical tips to make tax time more manageable.

Keep Separate Accounts: You need to keep your personal funds and business funds separate. This simplifies tracking your business activities and makes tax prep much easier.
Quarterly Estimates: Paying estimated taxes quarterly is kind of a pain. But it’s also easier to manage than trying to come up with a huge chunk of money once a year. The book Profit First that, I mentioned a minute ago, has a system to help you stay on top of your quarterly tax payments.
Stay Organized: Keep diligent records of all your business expenses and income. Use digital tools to keep track of everything. You can use accounting software or my Finance Dashboard.
Consult a Professional: And don’t be afraid to ask for financial advice from a tax professional. They can help you stay compliant and possibly even save you money.

Saving for a Rainy Day (and Retirement)

The next piece is savings. Savings are a critical component of financial security. You know this from your personal life. Savings protect against unforeseen challenges and prepare you for the future.

Cash Reserve: Start by building up some cash reserves. Think of this as an emergency fund. It acts as a financial buffer for unexpected expenses, and it can be a lifesaver in tough times. Aim to save enough to cover several months of operational costs. Personally, I keep at least 3 months of operational costs (including my salary) in my emergency fund.
Retirement planning: Second, it’s important to think about retirement, even as a solopreneur. Explore options like a Solo 401(k) or an IRA. Consistent contributions, even if they’re small, can make a significant difference in the long run.
Automate savings: Set up automatic transfers to your savings account. This way, you’re consistently setting aside money without having to think about it every month.
Review and Adjust Regularly: And finally, your financial situation will evolve, so you’ll want to review it and adjust your savings strategy on a regular basis. This way, you can make sure that it aligns with your current needs and business goals.

By staying on top of your taxes and actively managing your savings, you’re building a strong foundation for your business’s future.

Recap: 5 Small Business Financial Tips

Before we wrap up, let’s quickly recap the five money strategies we’ve talked about today. And remember, each one of these is a stepping stone to greater financial health for your business.

Embrace the art of budgeting: Budgeting is a roadmap to financial clarity and control. It helps you manage cash flow, prevent overspending, and make informed financial decisions.
Invest in growth: Strategic investments in your business, whether in education, marketing, or outsourcing, can lead to significant growth and open new doors of opportunity.
Cultivate multiple income streams. Diversifying your income not only provides financial security but also allows you to explore new markets and customer needs.
Master the art of negotiation: Effective negotiation can save you money, open up new possibilities, and build lasting business relationships.
And finally, plan for taxes and savings: Proactive tax planning and consistent saving habits ensure you’re prepared for the future, protecting both your business and personal finances.

Now, let me encourage you to pick one of these strategies and start implementing it today. Whether it’s setting up a new budget, exploring a new income stream, or even just opening a separate savings account for taxes, every small step counts.

So, get started! Choose one strategy that resonates most with you and your business needs. Take that first step. Your business (and your future self) will thank you for it!

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