Music Teacher's Helper Blog

With recession drawing to a slow close, many small business owners and individual contractors withvariable incomes are asking “How can I get better control of my business finances so that a future recession doesn’t unhinge my income?” Here are some great tips to help you control your business’ income and expenditures, and ways to plan for looming expenses in the future.

Concept 1: Baseline income

Many small business owners or individual contractors have an income that comes in monthly and fluctuates slightly from month to month. Though they never know the exact amount that will come home each month ahead of time, they have a pretty good rough idea of the amount based upon income averages for the month before, the quarter before, or even the year before. This average becomes their “baseline income” number. That is the very rough idea of what money they have to work with for the month, in order for a budget to be drafted and every dollar is accounted for.

Concept 2: Baseline need expenses

Do you have regular monthly expenses for your business? Advertising in the Yellow Pages, renting rehearsal space, copy costs, Music Teacher’s Helper service fees? Make a list of these regular expenses, noting that they will occur every month. This is just the basic number you need to run your business each month.

Concept 3: Flex Savings

The Flex Savings includes categories that are long-term expenses. You may buy music every quarter, refill your copier/ printer every two months, pay for a pianist for two recitals a year, and your taxes are always due quarterly. What do these costs amount to? Divide the total of all of these categories by 12. This is your monthly payment to your Flex Savings Account.

Concept 4: Hills and Valleys Fund

If you are self-employed, you should always have separate accounts for your business and your personal finances. All of your business related income should go into your business checking account, and your baseline need expenses and monthly Flex Savings payments come out of this business checking account.

To establish a Hills and Valleys Fund for your business, determine what the minimum business expenses are, and the amount of the minimum paycheck you need. Multiply the total of your expenses and paycheck by 3-6. This is the goal amount for your Hills and Valleys Fund. Should you become seriously ill and unable to work, should you have a very slow quarter, this fund keeps a paycheck coming in, and makes sure your business’ bills are paid during tough times.

Some business owners build a Hills and Valleys Fund over 12-24 months, depending on how many months of an emergency fund they need. Establish a monthly amount you are willing to contribute based on your income, expenses, and personal paycheck.

Safe places to store your Hills and Valleys Fund include money market accounts, CD’s, or a high interest online savings account such as HSBC Direct or ING.

Basic Business Accounts:

· Business ONLY checking account

· Flex Savings Account (accessible from your checking)

· Hills and Valleys Savings Account (savings account, money market, CD)

So there you have it! Budgeting can be done even when you don’t know what’s coming in each month. Once you have your first budget worked out, you can and should be tweaking it each month as you figure out what works for you.

Do you currently employ any of these tips in your business? What do you do differently in order to feel confident with your cash flow? Let us know!