Your business is starting to bring in some revenue, congrats! After you’ve paid your expenses (which includes paying yourself), you might have some money leftover at the end of the month. Don’t be alarmed though if you don’t have a net profit for the first little bit, it is very common for entrepreneurs to have higher expenses than revenues as their business gains traction.
When you reach the point where your revenues exceed expenses, it can be easy to want spend it frivolously. The best thing to do is to invest it back into the business and use it to either increase your revenues or decrease your expenses. You also want to make sure that the revenues you are generating are coming from stable sources and that your expenses are reasonable (i.e. production costs, rent, equipment maintenance, etc.) for the business you’re in.
Let’s take a look at the Top Ten Tips for being a financially-savvy young entrepreneur!
- Keep your personal and professional finances separate.
- Make sure that you pay yourself! This way, you can use your business revenue to pay your business expenses and the salary you pay yourself for personal expenses.
- Track all of your spending.
- Write it all down! Write down every cent that you put into the business, everything that you earn, and every cent that flows out. This will help keep you accountable.
- Keep every receipt.
- This will help for tracking revenues and expenses in a timely manner, which helps with demonstrating your business’ viability and financial stability to yourself, your team, and to potential investors. As well, when it comes to tax time, you will have the source documents you need when it comes to claiming business expenses on your annual income tax.
- Diversify revenue sources.
- One way to that can help increase or stabilize the revenue coming into the business is to have multiple revenue streams. One example that comes to mind is that if you are a SME (Subject Matter Expert) in your particular field, consider offering consulting to your roster on top of your current offerings.
- Put some money aside into a reserve fund.
- If you have a net profit, always put some aside for a rainy day or unexpected expenditure! My general rule is that I put 1/3 of what I make automatically into a savings account so that I can cover unexpected expenses (i.e. car repairs), expected expenses (car tires) and travel. Doing this also covers you for the slower times (seasons, months, a product flop, etc) when there is less revenue coming in and you are able to still pay your bills!
- Brainstorm and implement ways to attract more customers.
- Always be thinking of different ways to reach your customers, and don’t settle for the easiest way! For example, if you have a brick-and-mortar store, add an online component! If you have both already, try selling at different stores or other online retailers!
- Pay your taxes!
- Once you start earning revenue, you need to pay your taxes. You cannot use the excuse that you did not to get out of paying your taxes or missing filing deadlines, as detailed in the Criminal Code of Canada. Not only could you face jail time (which means you’re not working on your business and getting a criminal record), you would also be hit with unnecessary fines that could cost you a lot of money (there is generally a penalty for every day past the deadline that you do not file.
- Create and stick to a realistic budget.
- Using the most regular month for revenues and expenses, outline what money will be coming in and how much is going out. This will give you an idea of how much extra cash flow you have, as well as help identify areas where you can make adjustments (i.e. higher expenses than expected, or if there is room to increase revenues).
- Keep fixed expenses as low as is reasonable.
- When you’re starting out and cash is just starting to come in, don’t get carried away with spending unnecessarily! If you’re not a brick-and-mortar store, but want/need to have an office outside of your house, start with renting a small space in a less expensive part of town instead of renting a more expensive office in the most expensive part of town.
- Set financial goals and milestones for yourself.
- Be realistic about the financial targets you want your company to reach and when. For example, stating that you want to grow your customer base by 5-10% year-over-year is much more realistic than saying you want to have a net profit of $1 million within 5 years. It is easier to set smaller goals rather than large ones because it’s easier to keep focus and easier to see results.
I encourage you, if you need financial advice, to not hesitate to contact a trusted financial advisor. They can help you to get (back) on the right track to financial success! Not sure where to find one? Talk to your bank or one of the organizations outlined in What’s Available to (Young) Entrepreneurs in the Bay of Quinte Region. They will be able to refer you to the right people you need to talk to!
P.s. this post is dedicated to the woman who is probably my best friend in the world, and the one who taught me to thoroughly think through every financial decision before making it and who has been my most steadfast fan no matter how much my decisions stress her out. Happy 60th Birthday, Mom!!