The year end number crunching is finally done, how do you feel? Hopefully, pretty good with your year end profit and without any unexpected surprises. Or maybe it was quite a surprise to you and you cringed a little at “this” unnecessary expense and definitely “that one“!
In 2018, I focused on simplifying my life. I decluttered my home and worked on cutting out the unnecessary in my day to day. Unfortunately, it took me almost a YEAR to learn how to apply those same principles to my business. Because while I was reducing waste in my life, I was still wasting a lot of time and money in my business.
The internet is full of NOISE – AKA social media, ads, blogs, videos, educators, influencers, etc. That noise can quickly make running an online business more confusing than ever. It creates wants, distractions, shiny object syndrome, and general overwhelm. As if running a business wasn’t already challenging, it becomes even more so if you’re moving forward without a specific plan in place. Even worse, when you think you have a plan, but realize it isn’t sustainable long term.
After taking a deep dive into my business numbers, I discovered a lot of waste. I spent money on education and products that weren’t moving the needle forward in my business. Quite the opposite, these purchases often pushed me off a track that I was barely on in the first place. What you buy with your money, you also buy with your time, energy and focus.
I applied the principles of simplicity to my expenses and re-wrote the story for my business. Let’s help you do the same.
Every strong business needs a plan. According to its formal definition, a plan is: a detailed proposal for doing or achieving something. Typically, when creating plans or proposals, we have an end result in mind, and start from the beginning. We then create a timeline of events outlining how to reach a specific goal. I’m going to encourage you to create that same proposal, only starting from the end and working forward.
After I had been in business for a little over a year, I read a book that shared how some business owners still weren’t paying themselves two to three years into their business. It completely baffled me. I am absolutely guilty of making wasteful purchases in my business, but I always paid myself first. I get it, some businesses simply require more overhead than others. However, whenever possible you should start from a place of profit and work backwards. This means quite literally, writing your expected annual income at the top of the page, subtracting your monthly take-home pay, taxes and benefits underneath, and allowing the leftover to be your expenses.
If you do this exercise and find that you can’t afford your expenses, it’s time to reduce expenses and/or adjust the plan for your annual income.
So how exactly do you reduce expenses? Start with outlining your business priorities. Now that you have your basic numbers in place, it’s time to tell that money exactly where it can go. Yes, this is like a budget.. but we’re going to call it outlining priorities instead. I often find that when someone creates a budget, they’re just putting all their current numbers on paper and trying to find a way to make it work. Instead of looking at numbers first, you’re going to look at what you actually need in your business to keep it up and running day in and day out.
Make a list of the priority expenses in your business, starting from the top. Don’t think numbers just yet. Write out the most basic description of that business expense so that you can focus your attention on identifying what you REALLY need. As a photographer, do you NEED a computer? Most likely. Do you NEED eight lenses? No. Be honest with yourself during this exercise and brainstorm all potential expenses before moving forward.
Is your list complete? Now it’s time to start talking numbers. While your business may have a list of necessary expenses, each expense has a potential investment range. This is when it’s time to start thinking strategically and getting creative. Make quality versus quantity investments, but also save where you can. Of course, some expenses won’t have any wiggle room but so many of them will!
Brainstorm ways that you can potentially save where possible. Here are a few ideas to get you started: 1) buy used 2) annual vs. monthly subscription 3) trade services 4) schedule sale dates and plan (Black Friday) 5) buy in bulk when possible. Researching numbers should be a routine part of your financial planning strategy. Never settle for continuing with an investment just because it’s what you’ve always done. Expenses frequently fluctuate over time and there may be a better (and more affordable) option available!
CREATE A PLAN
You’ve done the leg work, now it’s time to do the hard work…create a financial plan and stick with it. It’s true that researching and knowing your numbers is only half the battle. There will always be something new and exciting offered to you as a small business owner. Whether it’s a new product to try, new education, or new photography equipment. All too often, small business owners make a large purchase on a whim and justify it as a “tax write off.” That tax write off could have also come in the form of contributing to your retirement, health savings account, etc.
- Create a plan that is based off your expected income and paying yourself first.
- Then add in your priority expenses.
- Have solid numbers in place to create a working budget
- Plan for unexpected expenses, give yourself some wiggle room!
- Create a “fun money” category for something new and unexpected that might come up. Education, technology, etc. so that you can invest in growth without being overly distracted by every shiny object.
I LOVE investing in new education and trying out the latest technology, but I also want my business to still be around in two years, five years, maybe even ten years. And I want the same for you too! Creating a financial business plan, and actively working to reduce unnecessary expenses is a smart practice to start that will only strengthen your life and business moving forward.