How I’ve Learnt The Importance Of Properly Managing My Business Finances

In this blog, I want to share with you some of the mistakes I made when I started Banks’ Business Solutions to do with business finances. I’m a firm believer that it’s better to share mistakes so others can learn from them and that’s what I hope this blog will achieve.

Let’s go back to 2017, I was 3 years into my business and didn’t really understand cash flow properly or the importance of saving to cover upcoming bills! As long as the money was coming into the business, that’s all my focus was on in those early months and years.

My financial management system was virtually non-existent

This meant that how my clients paid me was somewhat disorganised. Some of my clients paid in advance and some paid at the end of the month on 14-day terms. But I wasn’t really keeping track of all of this, I was just doing the work and ensuring the invoices got paid when they should. That’s really as far as any ‘financial management’ went for my business at that time.Why financial management is important for freelancers - picture of some scales on top of two books

I had regular monthly and annual bills to cover as well as taking a regular monthly ‘salary’ for myself. During this time I just about billed enough each month to cover the things I had to pay for that month, I didn’t really have any business savings (except for tax) and often spent the money clients paid me in advance before I had actually completed their work.

Everything in my business was based on a ‘best-case scenario’ at that point.

I knew I would complete the work so that was ok but what I didn’t factor in was the following;

1. What happens when a client asks for a refund?
2. What happens if you get an unexpected business bill or a bill you have been paying goes up in price?
3. What happens when your laptop breaks?

All of these things happened to me in a short space of time and I had to figure out how to move my money around to cover them – I ended up borrowing from my tax savings to pay for things and then paying myself less to make this sum back up so I had enough to pay for the tax!

It was a wake-up call and from that point on everything changed.

How I got better at managing my business finances

I started to keep a spreadsheet where I recorded all of my expenses (monthly & annually), my clients payments and I created pots of money for things like my tax. Doing this allowed me to see where I was short of money and allowed me to focus on growing my business further to be able to cover my expenses.

A couple of years later I had a healthy bank balance and have been able to maintain this during the pandemic. This has allowed me to invest in the things I need to run my business including a new laptop at the end of 2022 without having to ‘borrow’ money paid to me by my clients.

The key lessons I learned from my financial management mistakes

So, to summarise here are the key points you need to take away after reading this blog:

  1. Plan for the worst-case scenario and not the best
  2. Use a spreadsheet or accounting system to ensure you’re keeping track of everything
  3. Know when bills are due, especially those big once-a-year expenses and have funds in place for them before they’re needed
  4. Keep on top of your invoicing but try to build a reserve rather than relying on what’s coming in
  5. Don’t be afraid to ask for help if you need it!

If any of my story sounds like your approach to financial management at the moment, I urge you to take some action to put your business on a safer footing for 2023 and for many years ahead. If it all feels a bit too much for you, why not outsource to a VA or bookkeeper for some professional help?