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The Complete Handbook for Financial Management as a Solopreneur


Introduction

Immaculate bookkeeping wins half your battles as a hustling solopreneur. It improves your budgeting, maintains effective cash flow, optimizes tax planning, and spots opportunities for growth and success.

But for new business owners who don’t have a taste for accounting, all this financial planning can seem like a bit much. Yet, to run a successful business, you have to learn how to manage your money effectively.

To succeed in this balancing act, here are some of the top-tier techniques to follow and perfect. 

1.  Keep your personal and business accounts separate

From the word go, make sure you keep your personal and business finances separate. One fundamental way to do that is to create separate bank accounts for both and pay for related expenses from each relevant account.

If you have registered as an LLC or an S Corp, you can easily create a bank account under your business name, which the law sees as a legal entity separate from you. It will protect you from legal exposure and keep your personal finances away from business losses.

It will also simplify your taxes and ensure you pay less taxes through tax deductions on your taxable income.

2.  Have a business credit card

In the same vein as above, apply for a business credit card that you will only use for work-related expenses. If you are not sure how much credit limit you’ll need, aim for higher not lower.

Having a business bank account will make it easy to apply for and receive a business credit card with a strong credit line.

A business credit card ensures that, whenever possible, you’re keeping your own money secure and using credit to run your business. This provides a buffer to your cash flow and allows you to pay the bills on a monthly basis without overspending. It also keeps all your business transactions in a single place and makes record-keeping easier.

3.  Use online tools as much as you can

If you’re looking for simpler financial management, digital is the way to do it. With desktop apps and other software packages, you can take your entire financial management system online and keep it safe and syncing on the cloud.

You can use apps to store digital copies of all your important documents, digital wallet apps to manage your cash flow and business payments, and bookkeeping tools that track all your financial data and streamline money management.

Going paperless is not only good for the environment but using cloud-based solutions also ensures complete safety for your important documents. In case of emergencies like fire and flood, copies of your critical financial documents remain safe on the cloud and allow you to conduct your business as usual.

Though it’s important to mention that documents like your business registration, licenses, and deeds should be kept in safe lockers away from potential hazards, and for easy retrieval whenever need be.

4.  Track all expenses

Keep meticulous records of all your expenses, no matter how insignificant or small you think they are. Record every business dinner expense, every time you fill-up the car for business-related travel and every time you pay an employee or a contractor.

This will help you accurately track where all your money is going. This improves budgeting, cost-saving, and identifying areas where you could be making financial improvements. Keeping detailed track of all expenses also helps immensely when the tax season arrives.

When you are filing all those IRS forms, having detailed expense sheets makes claim deductions much easier and much more profitable.

But if keeping a day-to-day record of all your finances is becoming more than you can handle, outsource your business bookkeeping to a third-party company or use an online app or system to do the job for you.

But whatever you do, never lose track of your expenses. Spending a few hours every week on expense tracking is worth every second of your time.

5.  Invoice promptly and follow up on payments

As a solopreneur, you’re running the entire thing on your shoulders. So it makes total sense when you forget to follow an invoice or delay following up on a payment.

But if you let it become a habit, you soon will have a lot of financial trouble on your hands. So, as soon as you finish a sale or complete a project, promptly send out an invoice and clearly outline when you expect to be paid at the latest.

There are tons of invoice templates you can find online. If you are using an online cash flow system, those come equipped with digital invoice templates where you just have to add in a few details and initiate the billing process.

If you’re using paper invoices, keep their records neat and tidy, and make digital copies just to be on the safe side.

If your customers or client are late in paying, do not hesitate to follow up on it with friendly reminders. Consistent follow-up on invoice payments is just good financial hygiene.

6.  Save for taxes

As a solopreneur, you’re responsible for paying your own taxes. Granted, they are much higher than a salaried employee’s, but there are tax deductions you can claim on business expenditures to ensure a healthier financial outlook for your business.

But all of that is possible if you are vigilant about saving money for tax obligations and estimate your tax liabilities accurately. Ideally, you could open up a savings account just for the purposes of sending some money into it every month for eventual tax payments.

If you are unsure of how to estimate your taxes or calculate payments, partnering with a professional accountant or tax consultant could be a good thing. They can provide guidance tailored to your specific situation and ensure that you're meeting your tax obligations correctly.

7.  Regularly reconcile accounts and review finances

Income, expenses, profit, and cost are some key accounts that you’ll have to maintain and reconcile as you run your business.

To ensure that no errors or discrepancies can find a home in your data, you’ll have to keep a close eye on all your accounts. Reconcile your bank and credit accounts regularly to catch any errors early and fix them in time.

Regular financial check-ins also ensure that the overall health of your business is in top shape and that you can make any necessary adjustments in time and effectively.

Conclusion

Remember that financial management is an ongoing process that continually evolves. With some best practices and tailored solutions in tow, you can create a flawless and proactive money management system that secures your financial future as a solopreneur and allows you to grow and succeed.