How I manage the finances of my online business & save for big investments
I have a q for you. Does this sound familiar?
A course opens up for enrollment and it’s exactly what you need! It’s straight up the answer to your prayers. You’ve been (metaphorically) banging your head against a wall trying to figure out how to do what the course teaches.
You’re dyinggg to get in and get moving towards your dreams and goals . . . and then you look at your bank account. The course investment and your bank account balance are just not friends and there’s no way you can afford the course.
(Maybe for you it’s not a course, but a business coach, or a conference or mastermind. Regardless of what the investment is exactly, this post will help!)
Back in the day, that was a situation I was in a couple times.
Now, as a course creator, I’m on the other end, receiving the emails telling me how someone is dying to join but finances just aren’t allowing it at the moment.
Regardless of what the investment is you’re dying to invest in, I want to share the behind-the-scenes of how I managed my business finances.
This enables me to plan for and save for these big investments and happily hop in the course during the early bird special or by paying in full, thereby snagging the best price!
The hard reality of life is that it costs money to not have money.
Paying with a payment plan instead of paying in full? There’s a fee for that. Buying on credit and not paying it off at the end of the month? That’ll cost you extra. I mean, heck, if you go to buy a house and don’t have the 20% down payment, you’ve got to pay for an extra insurance.
Businesses look at the statistics, and the stats tell them that it both costs them extra to offer payment plans and there’s a risk they’ll never receive the full amount owed.
So there’s a real financial benefit to avoiding all of these costs and having the money ready to go to make those business investments.
(Not to mention, you can invest guilt-free, knowing the money was meant to be spent to help you improve your business!)
Alrighty, now we’re all on the same page, it’s time I showed you how exactly I manage my business finances.
How much is normal for business expenses?
That was my number 1 business finance question in my mind when I got started.
I had no idea if what I was spending was too little that I was stalling the growth of my business or if I was just blowing cashing unnecessarily.
I wanted a guide on business finances, but one that wasn’t for big corporations, but little 1-woman-shows like mine.
I heard good things from some business friends about the book Profit First by Mike Michalowicz and popped it into my Amazon shopping cart. (That’s an affiliate link!)
I fully expected to be bored to tears reading about business finances when I cracked it open one day in the summer. I was pleasantly surprised to legitimately laugh out loud a few times throughout reading it.
The book explained how we entrepreneurs normally think about money which leaves us going through frequent seasons and feast and famine and how to trick ourselves into breaking that habit.
And thankfully it answered the question I most wondered; what is normal to spend on business expenses? And exactly how much money should I pay to myself, save for taxes, have in profit, etc?
It was exactly the answer to my questions, so I big time recommend the book!
Now let’s break down what Profit First says about how much money should go into each category; profit, owners compensation (read: what you pay yourself), expenses and taxes.
How much should go into each financial category?
If your business makes 250k or less per year:
Owners compensation: 50%
(I want to keep this post really on-topic so I won’t go into what to do if you live in a country with higher taxes here in this post, but do know that it’s covered in the book.)
How I manage business finances with Profit First
Okay so I admit, this is where I deviate from what Profit First teaches just a little bit.
Profit First suggests that you have 5 bank accounts for the 5 different categories of finances and that when we earn revenue, we take the associated percent of that money and move it into the relevant bank account.
The way us entrepreneurs tend to make financial decisions is that we look at our bank balance and then make a decision on if we can afford something or not. The problem is that our bank account doesn’t just hold the money we have to spend on expenses, but also our taxes savings, money to pay ourself, etc.
By moving the money for each category into each bank account, we can continue to look at our bank balance (the balance of the expenses account) to determine if we can afford something.
I’ll be honest, I just use YNAB (that stands for You Need A Budget, and yes that’s an affiliate link too) to do basically the same thing.
With YNAB you create categories in your budget, like so:
You could probably also make an excel sheet work too if you’re good with excel. (I’m excel-phobic, so I just went with YNAB 😂.)
Let’s do an example with real numbers so you get the idea of how moving the percentages of money around works.
Let’s say I just made $4,550 in revenue. (Wahoo!)
Profit: 5% of $4,550 = $227.50
Owners compensation: 50% of $4,550 = $2,275.00
Tax: 15% of $4,550 = $682.50
Expenses: 30% of $4,550 = $1,365.00
So now you know how much you have for each category of your business finances, you can either put that money into the relevant bank account, or if you’re like me, just put it into the correct category in YNAB.
Now, when you go to make an investment decision, you can look at your balance for expenses (or profit can also be used for those big business investments too) and decide if you’ve got the money on hand to invest guilt-free!
The thing I really love about this system and truly seeing my budget is that it absolutely encourages me to save! Putting those amounts into the different sections of YNAB gives me a weird joy and feeling of responsibility. 😂
I get to watch my savings grow, I know exactly how much I should be paying myself and I’m not worried that I’m going to get a tax bill I can’t afford.
And of course, the whole purpose of this post, when I want to invest in something for my business, I’ve got the money on hand!
Implementing this system really encouraged me to save, get familiar with my finances on a regular basis and enables me to invest guilt-free knowing I set aside money for that purpose exactly.
(The hard decision is then just looking at all the potential business investments and figuring out which ones are going to move my business forward most!)
If you’re currently deciding on a business investment and the money just isn’t there, I encourage you to…
Wait on the investment, then to make sure you’re able to join the next time the course opens or coaching starts or conference happens:
Read Profit First
Start implementing the system (be it with bank accounts, YNAB or a fancy excel sheet)
Be all prepared for the investment the next time around!
I’m by no means a financial expert and this is not the only way to manage your business finances, but I am a debt-free 28 year old running a v profitable multiple 6 figure business. So I guess I’ve done alright so far 😂 and what I do is working for me at least.
So I truly hope that showing you how I managed my business finances will help you implement a system which works for you too!