Updated: May 16, 2023

5 Tips to Avoiding Money Mistakes When Self-Employed

As unemployment rates continue to holdout at 9 percent and signs of economic recovery points to slow growth, the do-it-yourself mindset has become a standard trend among young and old Americans. In...
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As unemployment rates continue to holdout at 9 percent and signs of economic recovery points to slow growth, the do-it-yourself mindset has become a standard trend among young and old Americans. In fact, studies show that 1 in 10 jobless Americans have chosen the path of self-employment by launching their own companies.

As the co-founder of MyBankTracker and a small business owner myself, surviving these economic times has been a challenge, but also a great learning experience. After focusing on how we were going to make money, we needed to grasp ideas and concepts such as pricing, cost control or financial management.

For those thinking of making the leap or are currently self-employed, here are 5 ways MyBankTracker has been able to manage our fiances and become profitable.

Money vs. Mission: While money helps businesses grow, it is important to always stay focused on your mission. If you're focused on what you love (the reason you started the business) you will build a business people love. With the rise of social media, creating relationships are more important than ever. No matter if you have a small consumer base of fifty or a larger one of 10,000, take the time to connect and share your passion. These individuals will share your passion and eventually drive new revenue.

Have a Strong Pricing Strategy: When the time comes to start charging for your services, having a strong pricing strategy can be the difference between sink or swim. Price too high, and no one will buy; price too low, and you end up losing out on revenue. If you are in a business with comparable competitors, your pricing strategy will be easier to determine. For those in a market that is not as transparent, do what you can to find out what others are charging, but plan to start high with expectations of lowering. By starting high you can avoid cutting into your profits.

If possible, avoid being the lowest price. Don’t undersell, this can devalue your product and not only turn consumers off, but also force you to generate so much volume it could put you out of business.

Know your Real Costs: Just because the product or service you are charging costs less than what you charge, does not mean you are making money. It is important to consider every aspect of your business from payroll to the water bill. Knowing costs for every variable in running your business, will help you accurately project if you are making money or not.

Don't Ignore Your Taxes: Having a ton of cash doesn't mean much come tax season if you haven’t been making the necessary tax deductions. Along with watching your day-to-day expenses, cash flow and product cycle, it is important to plan for your taxes so when it comes time to pay the IRS you are prepared. Examples of taxes that you should be considering are sales tax, income tax and payroll tax to name a few.

If you think you will end up owing the government a ton of cash at the end of the year, consider opening an SEP IRA. With a contribution limit of $58,000 and generally 100% tax deductible this is a great way to start an retirement fund.

Cash is Number One: A common mistake made by small businesses or the self-employed is combining cash and profit together. Many companies can be profitable, but if they lack the cash to cover internal costs, they wont be in business for long. With hard times still a head of us, strong profits wont keep you warm at time. Always plan for the possibility that clients will cut back or disappear. In these cases you need to have the cash reserves to stay afloat during slow times. Know what your cash flow is; if it is not growing each month you possibly aren’t making a sustainable profit.

Keeping these points top-of-mind will help you create a flourishing company and not one that lives invoice to invoice.