How often have you let the fear of making a mistake with your money keep you from really getting to know your numbers? Managing your finances doesn’t have to be confusing or scary. And making a money mistake shouldn’t be devastating. Read on to see a few common mistakes that I see creative entrepreneurs making—so you can avoid them in the future (or fix them today).
MONEY MISTAKE #1: MIXING BUSINESS AND PERSONAL EXPENSES
The first piece of advice I give to creative entrepreneurs is to use separate checking accounts for business and personal transactions. This makes it easy to track business expenses for tax reporting purposes and to know your numbers when you run monthly profit and loss statements.
Having separate accounts also ensures personal privacy and makes it easier for a professional to sort through your transactions. Imagine handing your account statements off to a bookkeeper at the top of the year and having him or her sift through your personal transactions for business deductions. If you already have separate accounts, make sure to avoid commingling funds by using your business debit card for business purchases only.
Another reason to keep business and personal expenses separate is liability. If you’re a registered business entity (LLC, partnership, or corporation), maintaining a separate business bank account protects your personal assets. One of the benefits of forming a separate legal business entity is to shield personal assets from business liabilities, so do your part to keep them separate. Otherwise, you might risk someone coming after your personal assets.
MONEY MISTAKE #2: NOT KNOWING WHAT IT COSTS TO RUN YOUR BUSINESS
The second mistake I see so many creatives make is spending from cash on hand instead of profit, which drains funds you should be saving for expenses down the road. That’s why you must know what it costs to run your business—you could be spending cash that you truly need to cover future expenses. If you’re wondering what it costs to run your business, I’ve created a handy worksheet to help you determine where you’re spending the money you earn.
MONEY MISTAKE #3: SKIPPING WEEKLY AND MONTHLY BOOKKEEPING
The third and final mistake you may be making in your business is skipping weekly maintenance and monthly bookkeeping. Quickly categorizing the week’s transactions and scanning the receipts will eliminate the scramble to do a whole year’s worth of transactions all at once. (Trust me, it’s no fun.) So, make it happen weekly!
Accountability partners are great for this sort of task. Hook up with your business bestie, and keep each other accountable for getting those transactions categorized weekly.
The same goes for monthly bookkeeping. If you’ve been keeping up with weekly maintenance, running your monthly reports will be a breeze. Run a profit and loss statement for the month and year to date. Then, compare those reports against your annual income goals to see where you stand. This makes analyzing your business goals against your performance part of a regular process, and it ensures that you’ll stay on track to crush your goals.
While I could list many more mistakes you might be making, the important thing to remember is that you can fix all of them with a bit of guidance and support. So, raise your hand and ask. We’re all in this together!