Few things are more exciting than starting a business on your own as a solopreneur. After all, as a solopreneur, you have full control over the course of your business. You get to decide exactly what direction you want your company to take in all matters.
Of course, by not having a partner to collaborate with though, you also increase your risk of making potentially costly mistakes that can ultimately hold you back from achieving profitability. In some cases, these mistakes can even harm your own personal financial standing as well.
To get greater insight into the business challenges solopreneurs often face, I recently spoke with Spencer Barclay, founder and CEO of Savology. By planning for these key financial challenges in advance, solopreneurs can better position themselves for lasting success with their businesses.
1. Failing To Accurately Track Expenditures
Depending on the survey, it’s estimated that as many as 60% of Americans don’t budget at all. This can lead to serious issues when trying to track your business expenses.
“Far too many solopreneurs will set up a spreadsheet to track their expenses, but then once they get involved in the daily grind, they end up never using it,” Barclay explains. “The end result is that they have no idea where their money is going, which can lead to overspending or cause them to miss crucial deductions at tax time.”
Instead, solopreneurs should link business accounts to automated systems and budgeting apps that can keep track of relevant expenses on their behalf. Routinely checking this information will help you know exactly where your money is going—and help ensure you’re not spending beyond your means.
2. Taking On Unnecessary Overhead
Knowing where your money is going, is vital for identifying and eliminating unnecessary overhead that could be cutting into your profit margin. For example, Founder’s Guide notes that many entrepreneurs set themselves up in classy and expensive offices that go well beyond their requirements, under the hopeful argument that they’ll soon grow into them.
Solopreneurs might rent a small office to give themselves a more professional feel, when in reality, they could work from a home office or shared co-working space to save a significant amount of money each month.
Before making any purchase or investment into your business, consider whether or not you actually need it. Chances are, you don’t often need a fancy new computer or new office decorations. By limiting your spending to only the essentials, you’ll have more money that can be invested into meaningful business activities that grow your revenue, like marketing and advertising.
3. Not Having A Set Invoicing System
Knowing you’ll get paid is a top priority for most solopreneurs, but many fail to address the how in this equation. “It doesn’t matter whether you’re setting up an eCommerce shop or providing consulting services, you have to establish a set system for invoicing and collecting payments,” Barclay says.
“Will you accept credit cards? Paypal? ACH transfers? These are questions that you need to answer before you start selling. You also need a way to track the status of your invoices—it won’t do you any good to send invoices to your clients if you don’t track whether they’ve been paid or not.”
Solopreneurs can’t be afraid to follow up when a customer fails to pay an invoice in a timely manner. Of course, using an easy to parse invoice template will also make it easier for clients to pay the invoice in the first place.
4. Not Adjusting Your Lifestyle
Becoming a solopreneur is rarely a path to getting rich quickly. Leaving the security of a 9-to-5 job means that initially, you’ll likely be taking a pay cut as you get your business up and running.
I’ve learned this lesson first-hand. It took me several years of experimenting with how to make money blogging on the side of my day job before I was able to match the income I was getting from my full-time gig. Despite that influx of side income, being disciplined about keeping a low-cost lifestyle and saving as much as possible was essential to giving myself a financial cushion once I did launch into my own business full-time.
If you don’t adjust your personal expenses accordingly, you could soon find yourself in serious trouble. In fact, research from CB Insights reveals that running out of cash contributes to an estimated 29% of startup failures, making it the second-most common culprit after a lack of market need.
“Solopreneurs need to be extra careful when budgeting their personal expenses. In reality, they should probably look to cut down in as many ways as possible. Whether you need to move to a smaller apartment, cut down discretionary spending on entertainment and eating out or cancel your gym membership, these sacrifices can add up quickly to help you stay afloat until your business starts generating real revenue,” Barclay advises.
5. Failing To Optimize And Add New Revenue Streams
Sending invoices is a key part of making a profit, but successful solopreneurs take things a step further—they actively look for ways to optimize their revenue streams and regularly add new ones into the mix.
Something as simple as making an accessibility enhancement to your website can lead to a major revenue boost. For example, in a recent interview with Digital Olympus, Matt Janaway, CEO of Marketing Labs advises, “Spend a couple of days analyzing your website and how it tries to get visitors to convert. On day one, install some A/B testing software and build a couple of different landing pages. Let the data roll in and pick the best performing page.”
Other revenue growth opportunities include reviewing your pricing model, incorporating referral marketing or adjusting paid advertising spend. Continually evaluating these dials can help you find new customers and increase profit margins.
Single person companies, like all businesses, still need a great idea and a bit of burning the midnight oil in order to gain traction. But if you want to ensure a lasting future for your company, you need to consider how you’ll manage your financial responsibilities as well.
By planning for a smart financial future from day one, you’ll be able to set up the right systems and processes for lasting profitability as you grow.
Source: www.forbes.com
