Freelancing. Contract work. Solopreneurship. Whatever you call it, it’s on the rise. The old American dream is dead, and more and more people are turning to alternative solutions for economic stability. In fact, it’s estimated that nearly 45% of the population has some sort of side hustle…and that number is expected to grow.
As perpetual champions for the small biz owner, we love these numbers. We think everyone should - and can - own some type of business. (We wrote a book about it, that’s how much we believe it.) From part-time side hustles to passive income streams, the possibilities are endless.
But with those possibilities come problems, and if you don’t treat your business for what it is…a business…those problems are really going to put a cramp in your journey to financial independence, particularly when it comes to finances.
With that in mind, here are five common problems entrepreneurs, solopreneurs, contractors, freelancers, side-hustlers, and new business owners make when it comes to money…along with five simple solutions.
Problem #1: Not separating your personal and business finances.
This is one of the most common mistakes entrepreneurs make - especially starting out. Mixing your personal finances with your business finances can lead to a lot of confusion, make it challenging to keep track of expenses and income, and ends up being a real pain in the a** when it comes time to file your taxes. Plus, you’ll never have a truly accurate picture of how your business is doing.
Solution: Create a separate bank account and use it exclusively for business transactions. This will save you a ton of headaches when trying to track income and expenses.
Problem #2: Not saving for taxes.
If you’ve always held a W2 job, you’re used to Uncle Sam reaching his fingers into your weekly or bi-weekly paycheck on a routine basis and extracting his portion on your behalf. How nice of him, right? One less thing to worry about. But when you’re an entrepreneur or doing contract work, the government doesn’t come calling for that money until April 15. And believe us, they will come calling.
Solution: Put aside a certain percentage of your monthly income for taxes, like a high-yield savings account. Earn a little interest along the way, and when it’s time to file your taxes, you won’t go into cardiac arrest when you get hit with your tax bill.
Problem #3: Not paying yourself first.
As an entrepreneur, you are the employee of the month every month. And that means you should be compensated appropriately. It can be tempting to reinvest every dollar back into your business; you want it to grow, right? But your physical and mental health are equally important factors for the long-term success of your business. If you’re paying yourself pennies and constantly stressed about paying your bills or eating ramen for every meal…that is not sustainable.
Solution: Pay yourself first—hard stop. Now, how much to pay yourself will depend on a few factors, like your personal financial needs, how much revenue the business is generating, and what your long-term goals are. You should regularly reevaluate your “salary” and adjust as needed.
Problem #4: Doing it all yourself.
The term entrepreneur, by definition, means “a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.” The keyword here is person, singular. Entrepreneurs too often operate as islands. This is understandable; they’re the ones with the most to lose, so it’s tempting to do it all themselves to make sure it’s done right. Sure, you can write the copy, design the website, and handle the finances all on your own... right up until you realize you haven't slept in a week and your bank account is overdrawn.
Solution: Outsource and delegate. Instead of struggling to write mediocre copy for your website for three hours, what if you paid an expert to do it in one? You might hate paying for something you can do “for free,” but your time is invaluable. You could spend those three hours meeting potential clients or negotiating contracts - tasks that might be more within your wheelhouse and are critical for your success.
Problem #5: Undervaluing your services or products
Many entrepreneurs lowball their prices in an attempt to attract customers and gain market share. And while it might be a good short-term strategy, it can lead to a lot of long-term problems. If your prices are too low, you’ll have a heck of a time covering your costs, and your profit margins will be shite. Additionally, if you’d ever want to increase your prices in the future, customers may be more resistant - especially if the service or product remains unchanged.
Solution: Determine the actual value of your products or services and set prices accordingly. What are your competitors charging? What is your target audience willing to pay? What unique features or benefits are you offering that sets you apart from the competition? All these factors should be considered; don’t be afraid to charge your worth.
Remember, regardless if you’re hustling on the side or building a startup or just recently acquired a new business, you need to treat it for what it is: A business. Wise financial decisions now will keep you on track and set you up for long-term success.