The beauty of being self-employed is that you have the power to pay yourself more. We’ll show you a simple strategy to make it happen! And no, it’s not a gimmick or a get rich quick scheme… just a little cash flow strategy!
If you didn’t go to business school before you started your company, no worries. We’ll make it super simple to follow, promise.
- Want to pay yourself more? Keep reading for a quick, simplified guide to getting on top of your business finances and increase how much money you take home.
- Resources we recommend:
- Listen to The Simplifiers Podcast
- Send Mary a voicemail to get featured!
Want to pay yourself more? Keep reading for a quick, simplified guide to getting on top of your business finances and increase how much money you take home.
Make sure you’re paying attention to the basics
You need to know exactly how much is coming in from your client revenue. It’s very simple… money coming in = client revenue and money coming out = your expenses, including your overhead costs, training, equipment, payroll, and however much you pay yourself.
You need these figures to work out how much profit is coming in. The mistake that most people make is that they often get excited by the revenue coming in, without thinking about the expenses that need to be paid out. Instead, they pay themselves from this pot of money, rather than looking at the big picture. Big mistake.
These numbers are going to be an essential part of your success – your cash flow forecast. Why is this blog post not called ‘how to create a cash flow forecast?’ Well, a lot of self-employed people tend to get a little freaked by those words. Spreadsheets, numbers, formulas. It sounds like a lot of extra work and stress. But it’s doesn’t need to be complicated. Actually, it’s the key tool you need, in order to carve out more money to pay yourself without bankrupting your business.
So, what’s a cash flow forecast?
Put simply – it’s a document that you use to keep track of money coming in and money going out of your business. But more than that, it helps you see where there might be problems ahead and where there might be opportunities to make more money. For example, if you notice a larger sum of money is going out the door in April to pay your taxes, you’ll need to make sure you’ve got the right amount coming in from sales and revenue to cover it… or tap into your business savings to float the expense.
A cash flow forecast typically covers the entire year for 12 full months. Think about how you invoice your clients as well, especially if you run on “net 30” – as in, clients have 30 days from the point they receive the invoice to pay you). And if you’re looking to pay yourself more in the next 90 days, you’ll need to know how much is coming in and how much is projected to go out in the next 3 months. Can you carve more out of the net income or will you need to run a special sales campaign to increase your revenue coming in?
How do I track my cash flow in a simple way?
First, get your numbers for the next 3 months (or 90 days) together. Find out how much is coming in and going out each month. List each product or service you offer, how much you charge and how much of each you expect to sell next month. Keep in mind any seasonal changes, promotions, or other things that may impact your sales.
You then need to know when the money will actually hit your account. You don’t want to pay yourself with money you don’t have yet!
Next, take a look at your outgoings. List your fixed costs – things like office rent and bills that will stay the same, month to month. Those amounts stay fixed. Then, list your variable costs. These are things that will change depending on various factors. For example, the amount could change due to how many sales you make or if you need have more labor costs during your busy season. So let’s say you design and sell wedding cakes. The cost of ingredients will go up or down, depending on how many you sell.
Get all of these figures down in a simple spreadsheet.
Feeling a bit overwhelmed or struggling to structure your cash flow? Mary can help simplify things and talk you through it – find out more HERE.
How do I set sales targets and put a strategy in place to hit those numbers?
This is the bit of work that’s going to help you build your business and find you ways to pay yourself more.
Now you’ve got these numbers and lists, you can see how much revenue you expect to have coming in and where to focus to increase your profits.
1st question – How much do you want to pay yourself?
2nd Question – How many sales do you need to make of your main product of service do you need to make to help you hit that target?
Look at your other offerings. Which ones should you focus on selling more of to hit your target? It might change from month to month depending on your sales cycle, the season and other factors but being able to plan ahead is crucial.
This is where having formulas saves you time but the most important thing is having those numbers in front of you.
Once you know where your sales focus is ahead of time, you can create an effective marketing strategy, and allocate time and money strategically.
Your cash flow forecast is the key to running a professional business, protecting yourself from risk and making more money. If you want to pay yourself more, you have to think strategically.
Bite the bullet and tackle your finances!
Listen to The Simplifiers Podcast
Make 2019 your best year ever with advice, guidance and tips from the expert guests who feature in The Simplifiers Podcast. Find all our episodes HERE.
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