Money can be a scary topic for a lot of people. Perhaps you don’t even know where to even start when it comes to managing finances and keeping yourself afloat.
But there’s one group who needs to nail down financial literacy in order to thrive: people with their own businesses. Without it, they may not earn a living or see success with their endeavor.
We spoke with small business owners about money advice they have for anyone hoping to get a handle on finances, whether you’re a business owner yourself or someone simply looking to try to improve your own personal bank account. Here’s what they suggest:
1. Make and understand your budget.
Erika Kullberg, an attorney and founder of Erika.com, told HuffPost that having a budget is paramount to success in both business and life.
“Your compensation can fluctuate, so it’s important to understand your cash flow and budget to make sure you’re saving for emergencies and retirement,” she said.
At the most basic level, you should budget for the necessities including housing, transportation, food and health care. Once you have the essentials covered, look at what’s left to budget for buckets like entertainment, subscriptions and savings. The key is knowing every dollar that goes in and out of your account.This guide on making a budget is a good place to start.
2. Educate yourself on tax breaks.
Whether you’re an entrepreneur, employee or a freelancer, it’s important to remember what tax benefits are available to you.
“This will allow you to keep more of your money so you can pay off any debt and save for retirement,” Kullberg said.
For example, if you have your own business, there are certain expenses ― like office supplies, travel costs and moving expenses ― you can write off in your taxes, which can help in the long run. For non-business owners, there are certain credits you can account for as well, such as having children or donating to a charity. A financial advisor will typically be able to help educate you on what tax breaks you’re entitled to based on your income and individual situation.
If you don’t want to spend money on an accountant or financial advisor, there are free resources online that can be helpful. NerdWallet and The Balance are two websites that have information on taxes, investing, budgeting and more that you can view for free. There are also content creators like Vivian Tu who make videos with information about financial literacy and the economy in an easily digestible manner.
3. Plan ahead for retirement as much as you possibly can.
Although for some it may feel like retirement is many years away, it’s never too early to start saving.
“For business owners, even if you plan to eventually sell your business, you still need to be investing and planning for retirement,” Kullberg said. “Get familiar with the various retirement plan options available to small business owners, such as solo 401(k)s, traditional IRAs, Roth IRAs, etc.”
For those who are employed, you’ll want to see what your company offers for retirement. Some common options you’ll find are 401(k) company match contributions up to a certain percentage, pensions and even retirement planning resources.
4. Make a plan for your assets.
If you’re one of the many people who have put their blood, sweat and tears into starting a business, then you’ll want to make sure you protect it by having the right legal structure, maintaining the right documentation and having insurance.
“Something that often gets overlooked is protecting your assets,” Kullberg said. “Business owners need to have adequate insurance ― such as general liability, errors and omissions, malpractice or other forms of insurance ― to protect themselves from lawsuits.”
This can not only save you money in the long run, but it can also end up saving your business.
For those who are employed, you can also make sure you’re protected by creating a will, making sure your insurance is still in good standing, and your money is being saved in proper accounts. A legal expert can help you as you’re drafting a will to make sure all your assets are protected.
5. Keep your records organized.
Finances can get confusing and messy between bills, invoices and receipts. That’s why Kullburg recommended an organizational system for your records. You may want to keep a spreadsheet with your expenses, invoices and income, or perhaps even a portfolio with physical receipts from transactions you’ve made in the past year pertinent to your business.
“Good record keeping habits protect you in the event of an audit, can identify theft, and lead to more accurate budgeting,” she said.
6. Buy time, not things.
This doesn’t necessarily sound like a budgeting tip at first, but you’ll quickly understand the importance of it once you do it: Ask for help.
“Trying to do everything yourself wastes time, money and limits growth, aka your revenue potential, said Jazmin Elon, founder of BLK Sunflower and The BLK Sunflower Business Collective. “Spend money on outsourcing tasks that aren’t your strengths or that take too much time, so you can focus on high-impact activities that drive revenue.”
If you’re hoping to launch a business, this approach allows you to scale faster by freeing up time for strategy and growth, reduce stress by delegating energy-draining tasks, and increase profitability by dedicating your time to activities that directly generate income. If you’re just looking to streamline your finances, this might look like budgeting for a financial advisor who can help you get control of your money in the long run.
7. Don’t make any financial decisions in the heat of the moment.
We are all human and it can be hard to manage our emotions sometimes, but David Daneshgar, the co-founder and CEO of Whippy AI and former World Series of Poker Champion, said it’s crucial for managing your finances.
For example, if you’re a business owner who found out that some people in your field are spending a lot of money on advertising right now, that doesn’t mean you should too. Yes, you might be anxious that you aren’t up to par with the rest of the competition, however, you didn’t have a chance to look at your finances and see what will work for you and your circumstances. Take a second, maybe take a few hours or days to evaluate, and then reassess what you’d like to do once you’ve separated yourself from the situation.
“One of the biggest mistakes in poker ― and business ―is making decisions when emotional,” Daneshgar said. “In business, staying rational during setbacks is crucial. Take a walk, breathe and focus on the big picture to avoid compounding mistakes.”