One of the things that I get asked about most (second to only “how to get clients” and “how to grow my team”) is finances in my business. How do I organize them, how do I manage them, and how do I make a profit. I never felt comfortable writing a post about this before because I’m so bad at math. But finally, I decided — why not? So here are some bookkeeping basics that I use in my business.
Seriously, though — take this advice with a grain of salt. I’m not a bookkeeper, CPA, or financial advisor. I’m super unqualified and absolutely terrible at math. This blog post is just a conglomeration of all bookkeeping basics I’ve learned in my business so far.
Easy Bookkeeping Basics That Will Help You Make a Profit
Incorporating Yourself + What That Means
The most basic step of these bookkeeping basics is that you need to figure out what legal entity you are.
Most online service providers will simply be sole proprietors. This basically just means that you’re a regular person who’s receiving business income, and you will have to pay self-employment tax on that income.
Typically, once you get to a certain point in your business, you’ll switch from a sole proprietor to an LLC. If you are a sole-owner LLC (i.e. you are the only owner of your business), there really isn’t a huge difference between that and being a sole prop. It’s mostly just to show the government like “hey I’m a real business!”
Usually around this time, you will also want to get an EIN number. This is basically a social security number for your business. You can get this number while you’re a sole proprietor or wait until you’re an LLC. It just depends on how comfortable you are using your SSN on a million forms.
The next step up is an S-Corp. Becoming an S-Corp has fees attached and there’s a lot of paperwork. But on the plus side, you will no longer need to pay self-employment taxes, as you will now be a true “employee” of your business.
I cover this in a lot more detail, with instructions on exactly how to register your business, in my free email course Build Your Biz Bootcamp!
Keeping Track of Your Income and Expenses
After you choose an entity designation, the next step of these bookkeeping basics is to start keeping track of your income and expenses.
There are lots of different softwares out there that can help you do this. Personally, I recommend Wave. It’s free to use and really user-friendly! Plus, you can invoice clients straight from the software.
You’ll need to start funneling in your income and tracking your expenses through this software to get an accurate idea of what you’re making and spending each month. You’ll want to connect your relevant bank accounts, Paypal, etc. to get an accurate picture of what’s happening with your finances.
An important part of this process is the categorization of these transactions. There are certain types of income and expenses that the money should fall under, and you’ll need to designate it as such in your software.
Paying Yourself + Paying the Government
One of the most important bookkeeping basics to learn is how to organize your money so that you are paying all of your expenses and saving enough for taxes, while at the same time retaining enough profit to support yourself.
A good rule of thumb, and something I followed for the first 1.5 years of my business, was to pay my expenses (however much those were), and then the rest was profit. Of that profit, 30% went into a savings account for taxes. And then the rest of the profit was mine to keep as a “salary.”
This is a totally fine (and completely standard!) way to do things. And it’s a perfect place to start.
But the problem with it is that eventually my business grew and I started to rely on this income to support my family. This wasn’t just pocket change anymore — it’s the money we were using to pay our mortgage and buy groceries!
That is of course the goal with all this. But with my income constantly fluctuating, we never knew how much money we’d have to pay bills. Some months were awesome, while others months we just barely got by.
The Profit First System
One of the bookkeeping basics that seriously changed all of this is that I finally read Profit First.
Profit First is a book that people have been recommending to me since virtually the dawn of time. I never read it, though, because EW FINANCES. I’m so bad at math that I thought the whole thing would be way over my head. Plus, it wasn’t like we were in debt. Did I really need to read this?
It turns out = yes.
A very brief synopsis of the book would be that it takes the traditional view of business finances (income – expenses = profit) and flips it on its head. The author encourages you to instead take your profit out first, and then use the rest to pay expenses and save for taxes.
Reading this book totally opened my eyes and gave me a whole new way of looking at things.
And while my business was actually not doing that bad, I learned all about some new bookkeeping basics to implement and changes that I could make to increase my profit and lower my expenses.
This is something I was already attempting to do. (If you look at the chart at the bottom of my most recent income report, you can see the huge difference between my profit margin at the beginning of 2017 and my profit margin at the end of 2017.)
Reading this book really put my butt into gear, though. And I think it’s a big part of why I was so successful in August and September this year.
So, if you’re struggling to make enough or simply want to get even better, Profit First is something you NEED to read. Like, now.
Reading Profit First made me really want to focus on reducing my expenses as much as possible. Obviously reducing expenses is, like, Bookkeeping Basics 101, but the author really lit a fire under my butt, and I made a lot of changes in my business because of Profit First.
Switched from ConvertKit to ActiveCampaign
Switching over from ConvertKit to ActiveCampaign actually took a lot of time (and time = money), because switching from one email service provider to another is pretty complicated if you have a lot of email sequences and freebies (which I do). myself a lot of time in terms of moving everything over. Luckily, though, I actually found this ActiveCampaign course on Udemy that helped me figure everything out. Total lifesaver!
However, on a month to month basis, I’m paying a lot less each month. Whereas ConvertKit’s cheapest plan is $29/month, ActiveCampaign‘s is a cool $9.
Plus, ActiveCampaign is awesome. I love how much more functionality it gives me.
Switched from LeadPages to Thrive Leads + Visual Composer
Because LeadPages functions as both a landing page builder and a lead generator, I did have to replace it with two things. ThriveLeads is my lead generator, for all of my pop-ups, slide-ins, and opt-in forms. Visual Composer is the page-builder side of that, for pages like this on my site.
One of the big reasons I made the switch (besides to reduce expenses) is because I felt like LeadPages was sucking all of my website traffic. All of my landing pages were hosted there instead of on my actual site. Bummer!
By transitioning to host all of my lead generation pages and forms on MirandaNahmias.com, I now get to keep all of that traffic. Plus I have a lot more control, design-wise, over how I set up my landing pages. I can even do sales pages right on my site, and if I integrate with WooCommerce or a similar plugin, I can add payment processing for free!
The whole setup is just so much more streamlined. ThriveLeads even has features like A/B testing, which is so awesome!
Switched from SmarterQueue to Recurpost
This was a huge savings! SmarterQueue has some great advanced features, but RecurPost has almost the exact same functionality. I was paying $50 for SmarterQueue, but the nicer design and the “cool” features I never actually used simply weren’t worth it. Over the course of a year, I end up saving $600!
Stopped spending money on courses, ebooks, etc.
I’m VERY picky about what I buy now.
For example, I almost completely stopped buying anything from CreativeMarket, because seriously — that is a black hole where my money goes to die.
At some point, I just needed to be realistic with myself. Am I actually going to make the time to take the courses and read the ebooks I’m paying for? All of the email reminders I get for courses I bought saying “you’re only 5% done with course X” really answered that question for me. Now, if I’m going to buy a course, I’m going to seriously consider it first and I’m going to take it immediately.
Reduced my ad spend
I used to spend money randomly on Facebook ads all the time. I even had a funnel set up for my course Four Figure Facebook Formula at one point. But, unfortunately, none of these ads ever performed very well. Before I knew it, I’d spent thousands of dollars and didn’t even break even! Talk about ew.
It’s so tempting to spend money on ads. I get it. It’s realy easy to tell yourself that “if the work for so-and-so, they can work for me!” Or that you’re going to stop if you don’t break even. But, trust me, it’s a slippery slope. And I just don’t think I was ready for ads.
Now that I’m making a little bit more in my business, and my funnels are way more streamlined, I’m finally starting to dip my toes back in the Facebook ads water. But shutting down my ad spend for almost a year did end up helping me save quite a bit!
Streamlined my systems
This is another big one. It may not seem like much, but the faster my team and I can do things, the less expensive it is.
Extremely small improvements in how we work can save a LOT of time overall. For example, we have task templates in Asana that we modify depending on the individual client. This may seem tedious, but it’s still faster than starting from scratch. Plus, the more clients we get who need those tasks/projects done, the more streamlined we get!