Money Management for Solopreneurs
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When you first go into business for yourself, money’s usually pretty tight. You pay for your business expenses and your personal expenses, and if you’re lucky enough to have money left over, you treat yourself.
That’s what I was doing, until a business coach suggested a different approach.
After that, I started transferring a set amount every month from my business account to my personal account. It was great – until business slowed down and there wasn’t enough to go around.
Some time later, I learned why the traditional formula Sales – Expenses = Profit leads us to work more and more with nothing to show for our efforts, even as our business income increases. Instead, he recommends that we take a profit first and pay our expenses with what’s left.
With Mike Michalowicz’s Profit First system, your profit is deposited to a separate bank account from which you receive a quarterly bonus. Everything is calculated in percentages, so if your income drops, you earn a smaller profit, but you always get something.
At first, I treated myself to small items, like a tote bag which cost more than I’d normally spend, and I’ve spent much of my bonus money on similar purchases. My biggest indulgence was a new recliner from a local store that I’d always thought would be too expensive for me.
Rather than focusing on bringing in more income, Michalowicz’s system requires managing our expenses effectively, but he provides guidance around this too. By crunching the numbers, I was able to reduce some expenses and eliminate others altogether. Some of the changes I made when adopting this system include:
- Switching my bank and internet to service providers with lower fees and better features
- Downgrading to free apps where I wasn’t taking full advantage of the premium features
It’s important to review the numbers again from time to time, to factor in new monthly or yearly expenses, price changes, and so on. In the past year I’ve replaced my paid accounts with Zoom and Acuity Scheduling with a subscription to Google Workspace Individual, which includes both functions for less than I was paying for either one of the others.
I’m really pleased with this system and think you might benefit from it as well. If you’re doubtful, I encourage you to borrow Profit First from your public library or read the first few pages on Amazon before you order a copy.
If you like the concept but need help implementing it, you can hire a Certified Profit First Professional. And if you REALLY like it and would like to enhance your bookkeeping, accounting, or business coaching business, you can even become one yourself!
Have you tried the Profit First system? What do you think of it?
Photo by REDPIXEL / DepositPhotos
Janet Barclay
I eliminate stress for my clients by hosting, monitoring, and maintaining their WordPress sites so they don’t have to worry about security, downtime or performance issues. When I’m away from my desk, I enjoy reading, photography, cooking, watching movies, drinking tea, and spending time with my family.
I’m with you! I love this method. After reviewing the process, I found I was already doing this and just needed to tweak a few things to make it more in line with this method. Thanks for sharing your experience.
Don’t you love it when that happens! It’s so much easier to adapt a system that’s working for you to make it even better than it is to adopt a brand new one.