One of the biggest concerns of the self-employed (or those who want to be) is money. The money issues come in all sorts of guises: fear of not having money, a genuine lack of money, irregularity of money coming in, not getting paid, chasing payments. The list can go on and on and sometimes the fears are valid and sometimes they’re not.
It’s why managing your money when you’re running a business is so important. And whilst you can get an accountant to help, ultimately the buck, quite literally, stops with you.
You will need to spend money setting up and running your business, that’s a given, but you can make that money work much harder for you.
How can you make every penny you spend in your business go further? Some fellow entrepreneurs share their top tips…
1. Be your own Finance Director
When you’re working for yourself, it’s no one else’s job but yours to make sure your business finances are in order. Even if you’re in a partnership, or have a team, as the owner, it’s ultimately up to you to be all over the financial health of your company. Take Communications Consultant, Liz Loly’s advice: “Be your own finance director and question your business spending”.
2. Create passive income from referrals
A couple of months ago I wrote a blog about referrals being one of the best – and most overlooked – ways to generate new business. “Create passive income side hustles by collecting referral/finders fees from those fellow industry bods you can send work to,” says Col Skinner of Profoundry. “These can add up to a considerable monthly amount if you are good at thinking of others when you see people asking for service providers.”
Or, if you recommend a service or tool to your clients, become an affiliate and earn money every time you pass on a new customer. For example, if you’re an accountant and you recommend online accounting software you could get a financial kickback for every person you get to sign up to it.
3. Find free or cheaper alternatives
We’re always told in order to be savvy with our personal finances you need to shop around. Well, the same applies to your business. “With every outgoing, consider whether there are free or cheaper alternatives that do the same job,” says Jen, a freelance copywriter. “For example, I switched from my old online accounting software which cost me £25 per month to a free service called Wave which completely met my needs. If my accounting needs get more complex, I can upgrade or use a paid service again.”
4. Cancel regular payments
On that note, are there subscriptions you’re not even using or could live without? Have you gone through your regular payments in your online bank account and audited them recently? Liz Loly says, “A few pounds here and there adds up. A low price monthly subscription for an app, website or service may seem insignificant but a few regular payments becomes more significant, especially if you’re not getting full use out of the subscription.”
Freelance writer James Devonshire agrees. “I recently reviewed all of the software I was paying for on an ongoing basis. Some of it I was paying for but not even using! It might have only saved me £20 or £30 annually, but it all adds up, right? Imagine the savings you could make if you’re a much larger organisation that hasn’t reviewed their software subscriptions for quite some time…”. If you’re not sure how much you’re spending, a free business account can help you keep track.
5. Automating certain processes
Time is money in your business, and if you’re doing a task manually that could be automated you’re wasting time and money. So many areas of a business can be automated easily and at a price that works out less than the labour costs.
Your digital marketing processes are a quick win to automate as a starting point – use a social media scheduling service like Edgar that allows you to create a library of posts and content, a calendar of types of posts to go out on each social network throughout the week and then publishes your post on a rolling basis. It even writes your social media posts for you! How much time would that save you?
6. Try digital marketing
Ah yes, on the topic of marketing… Whilst traditional marketing like flyers, banners and catalogues can still be really effective, digital marketing is usually a lot cheaper.
It’s important to understand your CPA with any marketing activity – that’s your Cost Per Acquisition. If you get five customers from sending 500 leaflets at a cost of £200, your CPA is £40. If you get five customers from a Facebook advert at a cost of £50, your CPA is £10. These are just example figures but digital marketing like social ads, pay per click (PPC) and digital display advertising often have much lower CPAs. Do the maths, and run a test with some digital advertising and see how much more cost-effective it is.
7. Get to know your tax situation
There are lots of totally legal ways you can save on tax as a small business owner. If you don’t know the ins and outs of the tax system, says Col Skinner of Profoundry, then you should get an accountant who does. “The outlay of their service should save you a pretty penny on your tax bill and let you concentrate on your own business which means you can earn more.”
8. Watch your cash flow like a hawk
You can be profitable but have no available cash. How? Well, profit is about whether your revenue exceeds your expenditure and cash flow is the amount of money you have available at any given time. If you’ve lots of invoices outstanding, for example, and no available credit to pay your business bills, you could find yourself in a difficult situation very quickly, and also incur fines for late payment or going withdrawn.
“I always recommend setting aside 5-10% of every invoice you raise or your daily takings and put it in a rainy day fund,” says accountant Claire Owen Jones. “Saving is boring but you never know when a customer will be late paying you, will refuse to pay you or one of your children will be sick… having a small level of reserves will allow you to breathe and carry on.” On that note…
9. Set up a savings Direct Debit
“This is the first year in my life I’ve had the spare income to be able to make an effort with saving,” says Jen from Rock Rose Digital. “Without the risk of instantly pulling it out again for bills. I have a direct debit for just £10 per week and every now and then if I notice I’ve got a bit extra floating around I’ll throw that in too. Just a few months in and it’s building up really well.”
10. Barter where you can
Negotiating prices and discounts with your suppliers might seem like a scary conversation to broach, but it’s part and parcel of business. PR coach Jess says, “If you need a service from another business, can you offer anything in return? I don’t always recommend it, as both parties need to be 100% happy with the deal and trade in services, but if you can barter successfully you can save a lot of money. It really helped me when I was establishing my practice.”
11. Switch utilities
One common cost-saving exercise business owners overlook is switching your utilities. Perhaps you’ve been on the same gas, electricity or internet provider for years and don’t want the hassle of changing everything over. Well, these days it couldn’t be easier to get a comparison on your utility bills and get an organisation like uSwitch to transfer you over automatically. They do businesses as well as domestic utilities, so there’s no excuse to see if you can save some money.
What all these tips have in common is taking responsibility for your business finances and having an awareness of what you spend money on and whether you can get a better deal. They may not stop the money worries completely but you know what they say, ‘look after the pennies and the pounds will look after themselves.’ And if you want to take it a step further, here are 10 ways to cut back on your living costs when your business needs the money more than you do!