Toph Sheldon, CPA for the Self- Employed 2019



513-342-4000 WWW.TOPHCPA.COM

The ‘Cash Flow’ Roller Coaster Ride of Being Self-Employed

When you open a new business for the first time and you’re newly self- employed, you may look at your savings and wonder what the future holds. Starting a business is a daunting task, and even more so when it’s your first time. You don’t have cash flow; you are not guaranteed a revenue stream to sustain the business, to pay every bill and make sure you have enough left over to put food on the table. During the first few years of business, your cash flow is inconsistent from month to month. Your focus is on making ends meet and you have no withholdings on your taxes. And when it comes to paying taxes, it might not all be there unless you put money aside to take care of your tax burden (something a lot of the new business owners neglect to do). This first year is like getting on the biggest roller coaster of your life. Consider the numbers. Let’s say your gross revenues are $50,000, your expenses are $20,000, and your profit is $30,000 in your first year of business. You’ve done okay in your first year and earned more than most small businesses do in their first year. You do your taxes and you owe $8,000. This puts a huge dent in your bottom line, and you didn’t even make that much! Once the math has been done, you’re barely making ends meet. This is a roller coaster ride that can last for years. Just in the first few years of business, you’re working hard to build yourself up to develop more consistent cash flow. Then, once you do have a decent cash flow, you turn your attention to any bills you fell behind on and any past due taxes you may have. Once you start paying these bills, your cash flow takes a huge hit and the roller coaster ride continues. Consistency is key. But for the self-employed, consistency can feel out of reach. Many of my clients don’t have their own employees. They can’t delegate or work as a team, which means more falls on their shoulders. When your focus is scattered and you’re trying to do so much at once, including marketing yourself

and getting new customers, being consistent isn’t on your mind; you

just want to make sure your bills are paid and food is on the table. Being self-employed and trying to make enough to survive (with the hope you will eventually thrive) can seem like a never- ending roller coaster. You have ups, downs, and sharp turns. But there are things

you can do to end the cycle, or at least make it a more pleasant ride. One of the single most important things you can do is set a consistent frugal

budget. That’s it! You would be surprised at how many business owners fail to implement this advice. They may set a budget, but they aren’t frugal with their money. You absolutely must spend less than you earn. But here’s the key: When you set a budget, it needs to be consistent month-to- month. Even if you earn more in one month than another, you shouldn’t alter your budget, as tempting as it might be. Save for the slow months, because there will be slow months, especially as you’re working to grow your business. Keep the budget static until your business has grown and your month-to- month cash flow has grown along with it.

–Toph Sheldon



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