Jan 24, 2020
WGM Ep. 11: GETTING YOUR FINANCIAL HOUSE IN
ORDER BY CREATING A BUDGET
As artists it's not always easy to change the way we think when it comes to financial topics like salaries, budgets, profit and loss statements, inventory, or sales. My goal is to help you to start thinking, if you haven't already, like a CEO. As a small business owner you have to wear a bunch of different hats which is not only exhausting but can be overwhelming.
Link to worksheet
Over the course of the first quarter of 2020, I will be breaking down each area of our business such as base line calculations, taxes and saving for a personal and business emergency fund. I want to help you change your mindset in regards to these areas. In this episode we will begin this process by talking about the one word we all Dislike but all know the importance BUDGET.
By creating a budget as John Maxwell says :"A budget is telling your money where to go instead of wondering where it went." Instead of making an order, selling the order, then spending the money or paying a bill or debt, you must learn to take the revenue earned from said order and immediately begin the allocation process of where it is going. We all have our personal bills, business expenses, and entertainment costs. The only way you will be able to turn your business into a profitable one is by not only changing how you think about money but also by creating and implementing systems to manage the money.
*** Remember first and foremost that when you receive payment for goods and services the business is to receive the money. If you pull any money out of this revenue you will do yourself a disservice. I remember the days of driving to a shop completely broke in hopes that the shop would buy everything or at least buy enough to allow me to put gas in my car, some food in my belly, and hopefully buy more oxygen to keep the ball rolling. This struggle is real and if you continue to think on a day to day basis this struggle will continue. If you begin to change your financial habits not only will you grow your business faster you will also grow confidence in yourself as a business owner. There's nothing worse for your creative spirit the standing behind your torch wondering how your going to pay a certain bill or worrying about your house getting foreclosed. ***
Even though this is an audio format it'll much easier for you to visualize what I'm about to talk about if you use the link provided in the show notes and follow along at home. This is going to be an example budget but in the end you need to go through the motions of this process so you can then take the time to sit down and focus for an hour or so and calculate your own budget. Generally a budget takes 90-days to really fine tune it as expenses you may not have remembered come up or you have an area of importance like new tires for your car that might be an every couple of years issue but happen to rear its ugly head during the beginning phase of establishing your budget.
Estimated personal expenses.
Write this dowen in the second column thunk of all the areas that you spend money outside of the studio
This will give you a clear view of your personal expenses and its important to see where your money is going. By having control of a budget you can then save in areas like vacation or those new tires for your car. Dave Ramsey refers to what is called a Zero based budget where you take your estimated monthly income and put it into catagories until you a 0.00 balance so if you bring in 2k a month after your business expeses and taxes then you need to allocate where that 2k is going. This will also give you a clear pictuee if you are even brining in enough income through the sales of glass and if not maybe you should conscidere getting a partime job in the meantime until your business consistanly brings in enough revenue to sustain the business and your personal budget.
Now in the area for income write down your estimated income based on last years sales. Now if you don't have a number what you need to do is add up your total estimated business expense and times that by "3" to calculate a generic number of what you should set a your goal for that months total revenue. If your expenses totals $500.00/month then you should shoot for $1500.00/month. That way your business expenses are covered leaving you $1000.00/month to be allocated to areas like your taxes, salary and retained earnings.(these 3-areas are of importance as well and will be discussed further in future episodes)
Out of the $1000.00, which would be considered profit, take 15-25% out and stick that into a separate savings account to later be used for your quarterly estimates. The remaining balance of $750.00 will then be paid to yourself in form of a salary. Now obviously the more revenue generated the more business expense you will have but this will also give you the ability to pay yourself more. That being said if your personal bills total $1000.00/month and your paying yourself $2000.00/month you may want to think about cutting your salary back a little to then be used as retained earnings for the company. The budget forms include savings for the business and for your personal. By taking all of this into consideration and truly beginning the process of how you think in terms of how money can work for you, not only will you grow your profits, you will grow your financial IQ and have a drive to want to learn more about accounting and marketing.
The BEST way you can improve how you manage the expenses in your business and personal life is having everything on paper in front of you on a daily basis. This will help you begin to create DAILY financial habits that will resonate for the rest of your life allowing you to setup retirement funds, live the lifestyle you want to live and grow to your fullest potential as an artistic entrepreneur. Start TODAY and get out of your own way. Establish good habits, stay out of debt and financially have the ability to change the world.