For many small-business owners – especially entrepreneurs who are just starting out – cash flow is more unpredictable than Midwest weather. One day, it's a downpour of clients and new business. Next week, a severe work drought.
Though it's hard to budget and plan without knowing what's coming down the pike, you have a lot at stake if you don't properly manage your income. Let's take a look at some of the risks you're up against and how to minimize unnecessary monetary setbacks.
1. Missing quarterly taxes.
Being your own boss has many perks, but paying the full portion of your Social Security and Medicare taxes is not one of them. Employees get a break on that front because employers pay half of these taxes. But you must pay the full 15.3 percent of your income for this self-employment tax.
And the rub doesn't end there. You must pay these estimated taxes each quarter. Payments are due…
- January 15.
- April 15.
- June 15.
- September 15.
If you miss these deadlines, you may be penalized for underpaying your estimated taxes when you file your return in April.
Because you may not know how much money you'll make for the year, look at what you made last year and use that number as the basis for your estimate. If you just started your business, take a look at your quarterly earnings instead.
Set calendar reminders now for your quarterly tax due dates so you don't miss the deadlines. To learn more about your tax obligations, read "Did You Freelance This Year? Now Is the Time to Focus on Small Business Taxes."
2. Not having enough money for the bills.
The scramble to pay your bills during a lean month can be especially nerve wracking. Nothing burns through a modest nest egg quicker than month-to-month living expenses.
You can make these expenses a little more manageable by:
- Introducing payment plans for your services. Instead of getting a windfall upfront, installments allow you to receive a set amount of money on predictable dates.
- Following up multiple times on invoices. Nonpaying clients are the worst, so don't be shy about following up on late invoices. Consider checking business credit reports before taking on future clients. Learn more about that in "A New Way for Small Businesses to Cut the Risk of Nonpayment."
- Selecting payment plans for your bills. You can pay your small business insurance premiums on a monthly basis just like you would your utilities. The benefit of paying your premiums in full is that you save a little money, but those savings may be negligible for a business owner without a lot of funds to spare.
To learn more about insurance payment options, read "Decoding Your Small Business Insurance Quotes."
3. Getting stuck in the feast-or-famine cycle.
This isn't entirely within your realm of control. You can't force clients to do business with you, but you can make sure you spend time every day trying to find new prospects. Though your days are already packed to the brim, make sure you carve out a little time to:
- Make clients calls.
- Interact with your followers on social media.
- Answer emails.
For more tips on drumming up buzz and business, check out "Make a Better Impression on 88% of Your Potential Clients."
4. Dipping into the business well.
Mixing your personal and business income is a surefire way to complicate your bookkeeping and tax records. To minimize the temptation to spend your business revenue with impunity, be sure to:
- Separate your business and personal accounts.
- Use your personal funds to pay your personal bills and your business funds for business expenses.
- Set up automatic transfers from your business account to pay yourself on a scheduled basis.
There may be times when you need to pay yourself a little extra, but establishing a limit can help curb frivolous spending.
For more penny-pinching pointers, check out our insurance savings blog series.