I have made a lot of mistakes over the years, but I have learned a lot too – especially when it comes to money.
This is part two of what I have learned in my 10 years as an entrepreneur. A lot of the mistakes I am sharing today could have been avoided with simple planning; something I have struggled with over the years (but fortunately have a better handle on now :) . Often, a business owner's problems with money stems from their beliefs or what their history is with money. I am not immune to these mistakes and I am hoping the experiences I share here are relatable and that I can help you avoid the same mistakes by sharing what I learned over the years.
Have a budget
You need a budget. You need to know what your expenses are and how much you have to spend as well as how much you need and want to spend. When I had my first business, a clothing store, we didn’t really have a budget. We just bought what we wanted – if we thought something was cute and would sell then we would buy it. But we had no idea what our budget was in terms of what we needed to earn, how much we should spend on advertising, staffing and any other business related expenses.
A lot of entrepreneurs and small business owners do this same thing. The consequences of not having a budget can creep up on you slowly – before you know it you’re further into debt than you intended.
A budget does not need to be complicated. Know what you are earning, what you need to buy, know your numbers, and spend responsibly.
Don’t just “make up” your pricing
Entrepreneurs who offer a service often make up their prices based on what they think people are willing to pay versus what they are worth.
You need to know what you need to earn and what your hourly rate should be based on that number. You also need to keep in mind that you are not going be billing for every hour you are available to work; sometimes you will need to work ON your business. You need to consider the hours it takes for marketing, engaging with your Facebook Group, etc.
If you only want to work a certain number of hours per week then how much do you need to charge clients per hour in order to make the income you need to make?
How much can you actually take home?
Don’t guess how much money you will take home at the end of the day. Most businesses are not built so that you earn $5, you get $5. Huge percentages of what you earn are going to different costs.
A good rule of thumb is the thirds rule. 1/3 goes to savings, 1/3 goes to expenses and then 1/3 goes to you. So, how much do you need to earn so that you can pay your bills and pay yourself? Think it through and plan for it!
I used to think I could pay myself 75% of what I made and only have 25% to pay my expenses – but this only increased my debt. Over time, I accepted that I needed to earn more money as well as think through how I could divide up the money I did earn to ensure my expenses, etc. were also covered.
What’s the bottom number? (Don’t start there!)
The lowest amount you’re willing to work for cannot be your price. Let’s say you figure out that you need to make $50 an hour in order to meet your income goal – don’t charge $50. Ask for more because this gives you the freedom to create packages, create discounts and deals when necessary, as well as give you some wiggle room to work for less if you need to.
Make sure you aren't accidentally earning way less than you deserve by not starting out at the right place. Earn what you need to make and charge what you need to make.
Save the HST
If you are charging sales tax then you need to save the sales tax. This sounds obvious, I know.
This is separate from your federal tax. I will admit that in the beginning, I didn’t do this, so when it came time to pay back my HST I had not put that money away and it took me a long time to pay it back. It's not that I didn't know I needed to save the HST, it's that I was falling behind by not charging properly, not budgeting properly, taking home the wrong amount of money and not having a plan - so I had to keep dipping in to the HST to pay all my expenses. I was not being smart! I now separate my HST so that it is now properly accounted for.
Consider all of these lessons pieces of a puzzle so that you have the money you need when you need it. This will save you from needless frustration and overwhelm. It will also prevent you from being underpaid.
Take the time to make a budget and create a plan so that you know what your numbers need to be and what that means in terms of how much you need to earn and how much you need to charge.
We all make mistakes in our businesses and you will likely still make some money mistakes in yours. That being said, a plan of action will do wonders to keep things on track.
It was MY coach that got me on track years ago and this is something I help my clients with regularly now. If you want to talk about how I can help you, book a free consultation and we'll talk.