Before I get stuck in, let me state for the record that I’m not an accountant or financial adviser, and I’m a bit crap at maths. So take the advice in this column with a giant pinch of salt, a slice of lemon and a shot of tequila.
But since starting my solo business I’ve learned a thing or two about how not to manage my money.
I’ve made some bum-clenchingly awful fiscal failures, and fallen into a number of financial holes. (Don’t worry, I managed to claw my way out in the end.)
So I thought I’d share some ‘what not to dos’ to save you from the money mistakes I’ve experienced.
TOON TIP 1: Find an awesome accountant
It’s taken me five years, but I’ve finally found an accountant I enjoy working with. My previous relationships have been fraught with unexpected fees, unfathomable advice and unavailability.
If you can get a recommendation, great. But if you can’t, try searching the Flying Solo listings to find someone and then speak to them. This is important, because you should feel totally comfortable with your accountant before you let them get their sticky mitts on your dough.
TOON TIP 2: Save for the tax monsters
You should save enough money to cover your tax (and GST if you pay it) each month, quarter or year.
I know this is bloody obvious, but I’m betting 54.5% of the people reading this article aren’t doing it.
For the first few years I didn’t do it either. Every BAS statement filled me with woe, and I waited for my end of year tax return with my stomach in a double sheet bend knot.
Now I have a separate account where I begrudgingly save the tax man’s pound of flesh each week. And I no longer have to expect the unexpected.
TOON TIP 3: Choose a good accounting package
I spent far too long sending crappy looking Word document-style invoices, keeping track of my finances in a dodgy Excel spreadsheet, and shoving paper receipts in a hot water bottle cover under my desk.
But no more. Now I use Xero, and my financial life is much easier.
Yes, there’s a monthly fee. But it’s worth it to have everything trackable, organised and looking professional. Check the Flying Solo forums for recommendations on accounting and bookkeeping software or listen to this recent Flying Solo podcast.
TOON TIP 4: Stop spending money
It’s easy to get so excited about running your own business that you rush out to buy a thousand business cards, a brand new computer and a box of branded tea cosies.
It’s also easy to think you can claim it all back from the Tax monster. But remember: you only get some of it back.
Just because there’s money in your account doesn’t mean you should spend it. Think hard about whether you really need that shiny new thing, or are you buying it just because ‘you can’.
TOON TIP 5: Develop multiple sources of income
It’s never a good idea to have all your earnings coming from one client, one service, or one product. Instead, have a few different offerings so if demand for one goes quiet you can fall back on the others.
So if you offer a service, think about creating a product you could sell and vice-versa.
TOON TIP 6: Set clear financial goals
When you start out it can be a struggle just to scrape up enough money to get by. But as you become more successful you can face a different problem—how much is enough?
I’ve done well financially this year, but I’ve worked a little too hard in the process. Next year I’ll be setting strict monthly targets to stop myself slipping into a work/greed frenzy.
Work out how much you need to earn both to survive and to thrive. And then think about what ‘enough’ means to you.
Things such as marketing and processes come relatively easy to me. But managing my money has been a steep, slippery and sometimes savage learning curve.
What money mistakes have you made since you went solo and what lessons have you learned?