What Should You Do with Your Money? 5 Basic Money Management Tips for More Financial Freedom in Your Business

Freedom. It’s the entrepreneur’s dream.

When you’re free, everything is incredibly clear. You know how you spend your time, what income you’re making, and where you’re headed in life and in business.

Unfortunately, too many business owners feel far from free. Working long hours, not sure if they’re making enough money, and wondering if and exactly how much they can actually pay themselves.

Worse than not feeling free is not knowing how to get out of this state of confusion.

The good news is that freeing yourself from confusion and finding financial clarity isn’t as challenging or overwhelming as it seems from where you stand right now.

When you know how to handle your money — regardless of what you’re making — you are on a strong path to freedom. And that’s what we’re on this entrepreneurial journey for!

Are you ready to add some smart money habits to your business so you can finally be free? Excellent. Today I’m going to walk you through exactly what you need to do to make it happen.

What’s Your Money Energy?

Many entrepreneurs avoid managing their money. Why do they do this? Partly because making money is the fun part; it’s great validation, having worked hard to build their businesses and finally see the results flowing in.

The rest of it… not so much. Financial reporting, tax payments, and separating your business and personal expenses can feel tedious. It’s not nearly as sexy as making money!

Maybe there is some debt from when you started the business, and you don’t want to think about it; dealing with it would feel like stepping on the scale after a long, cookie-filled holiday season.

While business success makes you feel proud, financial organization can make you feel discombobulated. But if you continue to only focus on bringing in business revenue to the exclusion of all other financial choices, you’ll have nothing to show for your hard work.

Energetically, it’s like carrying a full water bucket right to the edge of your crops, and then setting it down before actually watering your plants. You finally have enough water to hydrate all of your seedlings, but you keep just setting down the buckets. And the buckets are leaky, so the longer they sit there, the more water drips away.

Your goals — buying a home, upgrading your lifestyle, travel, stabilizing the future — are your crops. If you’re not set up to use your money, none of your crops are going to flourish.

“But I’m investing in my business!”

Investing in your business is a good thing. You’re supposed to do this. But are you “overbuying,” meaning purchasing too many programs and not following through? This is a typical (and common) avoidance behavior. It means you need to slow down and decide the one thing that you’ll focus on to grow your business for the next ninety days. Then, if a program comes up that isn’t in alignment, don’t buy it.

“But I’m getting a bookkeeper. Isn’t that enough?”

Everyone should have a bookkeeper. Bookkeepers manage all of the financial data for your business and provide a historical record. But don’t hire a bookkeeper and think you’ve delegated financial responsibility. You’ve only delegated financial recordkeeping. It’s still up to you to make the most of the money coming in the door and to set your financial policy.

Why Financial Policy Is a Must-Have if You Want Financial Freedom

“Financial policy” just means automating what you do with your money and how you make those decisions as conditions change. Here are the five major areas you need to address in your business.

#1 – Expenses

Entrepreneurs need to know what their lives and businesses cost before income starts to take off, so they can capture profits. Entrepreneurs should know the specific amount of money they need to get by each month in their lives.

Don’t know what your expenses are? The simplest way is to get started on Mint or YNAB. This clarity is essential to everything else that comes after.

#2 – Taxes

Taxes can sneak up on a business owner if she’s not prepared. So the easiest way to stay on top of this (and not get caught without the money to cover your taxes) is to move 20% of your monthly gross revenue into a tax savings account. (This would be about 40% of your business profit.) This way you won’t accidentally spend it! Your marginal tax rate is higher, but after deducting expenses, most businesses are effectively taxed in the 20-25% range.

Keep in mind, if you have a separate business structure (like an S-Corp), you’ll owe taxes both as a business and as a person receiving income from the business, and so you’ll probably need to increase the 20% above to 40%. Also, be sure to work with a CPA, someone who can help you take money from the business in the most tax-advantaged way possible.

#3 – Separating Business and Personal Accounts

Having two separate accounts — one for business expenses and one for personal expenses — is not only good financially but also good protection should legal liability issues ever arise.

When entrepreneurs don’t separate business expenses from personal expenses, it’s too easy to buy things on a whim from your business account that don’t have anything to do with business. On the flip-side, it’s easy to spring for an out-of-the-ordinary business expense when you don’t realize that the money sitting in your business account is actually earmarked for your mortgage and other personal expenses.

When you’re totally clear on what you need to live on each month and have that automatically transferred to your personal account, you end up making much better spending decisions. You’ll easily see what you can afford both personally and business-wise.

#4 – Savings

Cash reserve and retirement savings should always be factored into your expenses. Don’t wait until you’re making your dream income goal; build it into your minimum budget so that regardless of your income, these areas are always being fed.

#5 – Raises

If you’re thinking about giving yourself a raise, wait six months. Stick to your basic personal monthly withdrawal and save the extra in cash in your business account. Once you’re confident that your average income has permanently increased (versus just having one or two good months), then you can add to your lifestyle — get that house cleaner, hire a dog walker, or go out to dinner an extra time each month. This would also be a good time to increase contributions to your retirement and cash reserves or any specific goals you have.

Shifting Your Mindset for Financial Freedom

Financial success is as much about clarity as it is about anything. You never want to wait until everything in your business is perfect to start taking your money seriously, because “perfect” never happens. It’s all about incremental improvement and building on existing momentum.

Just because money is “serious” doesn’t mean it can’t be fun! Drink your favorite beverage while reviewing expenses. Put on some relaxing music or snuggle into your comfiest chair with your laptop. Hold a weekly or monthly “money conference” with someone you trust (and consider wearing tiaras while you do it!).

Your money becomes what you bring to it. So for 2014, be sure to bring all of your favorite elements to it so you can feel good not just about the money coming in but also the money going out. Tweet that!

And that is financial freedom.

What’s Your Money Mindset?

Now I want to hear from you! Tell me…

What do you struggle with most when thinking about organizing your money?

Which of these tips do you plan to implement first?

Where do you need more clarity to move forward?

I can’t wait to read about your experiences and answer your questions in the comments below!

****
Mindy Crary, MBA, CFP, is a financial coach and planner who helps female entrepreneurs with not just their money, but the whackjob behind it… and she understands that your greatest obstacle to wealth really is you. Get her free ebook, Getting Started With Conscious Spending, at her website Creative Money.