5 Smart Money Moves for First-Generation Small Business Owners
No matter what you thought when you first got into business, you may have realized that successfully running a small business is all about making the right decisions. And as an entrepreneur, there are dozens of decisions that you have to make daily!
It can be overwhelming to know how to make the correct decisions to move your business in the right direction. Especially when it comes to managing your business finances, the wrong decision could quickly turn into a disaster. If you are a first-generation small business owner who doesn’t have a mentor to guide you, these decisions could cost you your business. That’s why I’ve put together my list of the top five smart money moves for entrepreneurs and startups so you can successfully launch, build, and scale your business.
1. Create a realistic budget
Do you hate the word “budget”? Many first-generation entrepreneurs (self included!) do because it brings up feelings of shame, guilt, and failure. However, learning to work with money is one of the most critical pieces of becoming a successful small business owner. Without this important element in place, you run the risk of overspending, not paying yourself enough, or even running short of cash for taxes!
That’s why part of getting comfortable with managing your business finances is creating a realistic budget. This will help you keep track of expenses while ensuring that you have enough set aside for taxes. A useful tool that can help first-generation entrepreneurs create a realistic budget is the 50-30-20 Money Framework.
This Money Framework provides you with a simple guide on how to divide up your profits (business income less expenses). In summary, 50% of profits get paid out to you as the business owner, 30% is set aside for taxes, and 20% can be taken as profits or reinvested in the business. Simply implementing the 50-30-20 Money Framework can help you realistically plan out the use of your business finances.
2. Avoid overspending on expenses
If you are a new business owner, watch out for this trap: Overspending on expenses. There’s no denying that certain expenses are necessary and cannot be avoided. They are simply the cost of doing business. Things like the cost of registering your business, setting up business bank accounts, and essential tools you need to deliver your services to your clients would fall into this category.
However, what trips up first-generation entrepreneurs is often unnecessary expenses. These are “nice-to-have”s but are not indispensable to running a profitable business. In the early stages of business, these could include paying a high-end web designer to create a website, investing in complicated CRM systems, or building out a complex sales funnel.
While those things may be useful further down the road, they are not foundational to creating a successful business. A smart money move for first-generation business owners is to prioritize only what is necessary at each stage of your business. This requires a careful evaluation of the costs and benefits of each expense that you incur in your business. Conscientiously doing this instead of simply following the advice of Internet marketing ‘gurus’ will serve your business well in the long run.
3. Build an emergency fund
We can’t predict when things will go sideways but we can be prepared. One of the things that sets successful entrepreneurs apart from others is their ability to navigate challenging situations that may come up. While it does take business acumen and know-how to get out of less-than-ideal situations, having a business emergency fund can also help.
Maybe it’s an unexpected expense in your business (ever spilled coffee on your laptop?). Perhaps you have a personal situation and cannot work for several weeks. It could simply be the ups and downs of running a business. Whatever the reason, there may be times when the income you are bringing in is not sufficient to cover the cost of running your business. At those times, an emergency fund will come in handy.
If you have implemented the 50-30-20 Money Framework as your first smart money move, you don’t have to worry about this. The 20% that is left over from your profits can contribute to your emergency fund. Ideally, the goal is to build your emergency fund out to a level where you have three to six months of your business expenses set aside. This will give you a much-needed buffer and ease your stress in critical moments.
4. Focus on creating recurring revenue
In my years of supporting consultants and coaches with their bookkeeping and accounting, I have seen this play out repeatedly: the cycle of feast and famine. It is not uncommon to see coaches and consultants swing wildly between comfortably serving a roster of happy clients in a 3- or 6- month program, then frantically diving into hustle mode to launch and get new clients.
Not only is it exhausting and unsustainable, but it also adds instability to your life and your business. Instead, a smart money move you can take would be to focus on creating recurring revenue through marketing and sales strategies.
Evergreen courses, digital products, and pre-recorded webinars or trainings are some common streams of recurring revenue. Depending on your business, you could also offer longer-term packages for your services instead of taking on solely project-based clients. When you start thinking about how to build recurring revenue streams into your business, you will create more stability and ease in your business.
5. Know when it’s time to outsource
No man is an island – and neither is a business owner! It can be tempting to do everything on your own, and in the early stages, this may be necessary. However, as your business grows and gains momentum, you will move past the point of being able to do it yourself. It will become essential for you to hire help.
Knowing when to outsource tasks in your business is an important money move every business owner, startup, and entrepreneur needs to make. It can feel like you are “saving money” by doing everything in your business by yourself, but this could be costing you your business growth. This is a money block you need to overcome to succeed in business.
One area that first-generation entrepreneurs may feel resistance to outsourcing is hiring a professional to help with bookkeeping or to get tax advice. However, there is a multitude of reasons why hiring a professional for your books and taxes could be the best financial decision you make, including reducing stress, avoiding trouble with the IRS, and even saving money!
Bonus: Get support from trusted mentors and advisors
Entrepreneurship as a first-generation business owner can feel like a lonely journey. But it doesn’t have to be. Getting support from trusted mentors and advisors can help you avoid making costly mistakes and move you along the path to success much quicker.
If you are ready to power up your business startup journey with advice, guidance, and support, check out the House of CEO Membership. Learn everything you need to know to set up your exceptional business for success. Join the House of CEO Membership today.