Dear Sarah: Handling Cashflow

Hi Sarah,

I have a lot of things going well in my business, but I know that I'm missing things when it comes to my finances and accounting. Whenever I focus on the money, I feel out of my depth and also worry that I'm undervaluing myself.

Part of my issue is that my income is so inconsistent (I don't make the same amount each month), some advice about money just doesn't seem to apply to me. So I often feel alone and like I'm having to make all of this up by myself. How can I set something up that works for me -- not a generic business?

How do I get control (i.e., not feel so anxious when I meet with my accountant) when clients need a lot from me and life happens unexpectedly?

Thank you!
Money Concerns

Dear Money Concerns,

I have so much to say on this subject, and I will try my best to stay focused on your questions rather than wax poetic about what money (or not having money) feels like. You’ve outlined what most business owners, and people in general, feel all the time: like they’re in the dark and they’re not doing it right, whatever “it” is. The quick answer is that there isn’t a specific formula that will work for everyone across the board, but there are tools you can implement to create a system that makes you feel comfortable and in control. If this is the last sentence you read, please read it carefully: You want to understand the reality of your spending (look back a few months and start to understand your patterns), and you want to know what your earning potential (or actuality) is. Inflow, outflow and the balance of money after.

I am not always great at managing my own money (business money is on lockdown, but personally, it’s always a struggle to make sure I’m buying want I need, not just what I want.) I have debt (starting a business is complicated), I’ve struggled with cash flow (tough lessons in my own value), and I’ve spent money that I shouldn’t have (damn you beautiful shirts by beautiful independent makers!) This truth needs to be out in the open because people don’t always go there in a real way and I want you to know that you’re not alone. The struggle with understanding your relationship with money goes deep into one’s relationship with their parents and their parent's relationship with money and … you get the point. So like anything else, you CAN heal your relationship with money, and you can be good at it -- it just takes a little rewiring.

I am not technically a financial adviser (that’s a certification and degree), but I am definitely a teacher that believes in presenting information in as many ways as possible when it comes to money. The reason I now understand how money works in business is that I studied entrepreneurship and applied those principles to my life. Theory and practice have a tendency to be hugely different, so I used that foundation of knowledge and remained flexible in the reality of business situations. From there, I created my own theories and systems to teach money understanding.

What I know for sure: Even if you have a perfect brand or product or marketing campaign, without understanding what your money is doing, you’re going to feel stuck forever. That was all a long answer to your “out of depth” comment, which is -- we ALL feel out of our depth. There is so much to understand. I encourage you to talk to an investment adviser and join a credit union that will help you open a 401k, IRA, HSA and more. Prioritize those, and everything else will start to make more sense.

To answers some of your questions …

#1: Understanding what you need to make (this is in regards to “undervaluing” yourself)

What kind of product are you giving your clients? For example, are you creating a brand that will propel them to the next level, ie, make them more money? Or will what you’re doing level up your company and theirs at the same time? Consider the VALUE of your work in the present and in the future. Consider asking your clients about their own financial goals in regards to the value that you’re creating for them. Read Breaking the Time Barrier by the Freshbooks team. It broke my brain in the best way.

#2: Solving inconsistent income

Some say the solution for inconsistent income is to create consistent income -- I agree! Find ways to create a baseline income so you can, well, enjoy yourself. But I also think that inconsistency is the way that this whole game works. To anticipate what type of income month or quarter you’re having to help you pitch and look for work that fits best for you. Inconsistent income can be a blessing! The freelance community is growing every day - people are realizing the value of owning their time, finding atypical mentors, shifting their careers, and of course, motivating themselves outside of a boss/employee relationship. I do agree with where your question was going - to make this fun, there has to be some sense of control.

#3: Build control and consistency through spreadsheets

To create some sense of control and consistency, I would suggest you create some kind of cash flow spreadsheet for yourself.  This means that you will want to hone in on your first assignment above, which is to understand what you need to make. There’s some grit that’s required here especially if you are of the kind that needs to make a certain amount of money to survive (i.e., no one else is supporting you) I have always made sure to find a way to pay rent and all of my expenses every month. In the beginning, it was babysitting in the afternoons after seeing my first few clients. That side hustle to supplement my passion was a life saver, but once it got in the way of having more clients, I kicked it to the curb ASAP. My point is that I know you will find a way to cover all of your expenses, but I know you’re talking about something else.  

Cashflow is literally that - the act of money going in and out of your business. Including the money that you want to set aside for taxes & potentially a little profit to start building your nest egg. Tax savings should be at least 25% and if you can afford it, 30%. If you have to pay less than what you’ve set aside, yay! You get to give yourself a bonus.  

I hope the above inspires you to talk about money and dive deeply into creating systems and plans that make you feel most comfortable.

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