You know how to make money, but do you know how to keep more of that money in your pocket? If you’re like most entrepreneurs, you’re probably not maximizing the amount of money you keep after all the bills are paid. And that means you’re losing money. Not cool.
I want to help you keep more of your hard-earned money, so below are three financial strategies that EVERY entrepreneur should know.
Start Here: Are You Financially Literate?
Financial literacy is an absolute must for any business owner or entrepreneur. I’m not saying you need to become a CPA or financial guru. But you do need to know enough to make informed decisions. Too many business owners simply hand over their finances to professionals and cross their fingers. But it’s your business—it’s your responsibility to understand the basics.
The number one reason small businesses fail is a lack of funding (i.e. they run out of money). And that often comes down to poor cash flow management. So how do you avoid fizzling out? Here are three strategies to better manage your financials.
One: Account Dispersion to Protect and Allocate Your Funds
In light of all the recent market volatility—think SVB banking issues, fluctuating interest rates, and FDIC insurance concerns—having a strategy for account dispersion is more important than ever. Here are the four main accounts I recommend opening:
1. Everyday Operating Account: This is your primary account for day-to-day business expenses.
2. Reserve Account: This should hold six to eight months of operating expenses for emergencies. Think of it as your business’s safety net—just in case something like a pandemic hits.
3. Tax Savings Account: Set aside 20-30% of your earnings into this account for taxes every month. That way you won’t be blindsided by a hefty bill at the end of a killer business year.
4. Savings and Fundraising Account: This account is for future investments in your business—whether it’s a new website, a commercial property, or an educational course. Start setting money aside now so when the time comes, you’re ready to invest without disrupting your cash flow.
Two: Know Your Financial Goals and Inspect Your Cash Flow
Do you know your financial goals for yourself and your company? It’s a simple concept, but one that many of us overlook. Take the time to define what you’re working toward. Once you know the goal, the next step is understanding your cash flow.
Remember this mantra: “Before you expect, you must inspect.” You need to know exactly when your money is coming in and when it’s going out. Understanding the cadence of your cash flow—whether you have a recurring revenue model, a launch-based business, or something else—helps you plan better and grow your business healthily.
Three: Research Tax Strategies to Reduce Your Liability
This is where things get interesting. While I’m not a tax professional, I’ve learned a few strategies worth bringing to your CPA or financial advisor. These could potentially reduce your tax liability and save you a significant chunk of change:
1. S Corp Election: If you’re an LLC, consider electing S Corp status to avoid much of the self-employment taxes and qualify for the 199A deduction.
2. Augusta Election: This allows you to rent out your home tax-free for up to 14 days a year for business-related events like client gatherings or company meetings. It requires thorough documentation, but it could be worth exploring.
3. Home Office Deduction: If you use a portion of your home exclusively for business, you can deduct a percentage of your household expenses like utilities and internet.
4. Hiring Your Kids: Did you know you could hire your kids to work for you and pay them tax-free? You can pay them up to $14,600 tax-free. (But please remember that the job has to be age-appropriate and well-documented!)
Financial Literacy for Entrepreneurs
This is just scratching the surface, but even implementing one or two of these strategies could make a noticeable difference in how much money you keep at the end of the year. Financial literacy, strategic account management, clear financial goals, and smart tax strategies—these are the keys to ensuring your hard-earned money works for you.
Open up your financial dashboard, ask your CPA the tough questions, and take control of your money. And if you’re serious about building a solid financial foundation for your brand, schedule a free Brand Strategy Call with my team at Brand Builders Group.
