The In-Depth Guide to Mapping Your Money, and How It Can Fortify Your Business, Part II

Last week, I talked about money-mapping, why it’s helpful, and how you can get started. Today, we’re going to dive into more money-mapping using the Profit First methodology. Profit First posits its own money system, pictured in the above map. Its goal is to ensure that you as the business owner get paid.

Solopreneur Paycheck

In order to ensure that you actually get paid by your business, you need to portion off a certain percentage of your income, and then designate that for your personal finances. This portioning off is exactly what the Owner’s Pay account is for in the Profit First system. The Profit First system advocates for creating separate accounts for all your different pots of money associated with your business. If you can’t do that or don’t want to, I advise using a spreadsheet. You can use this to keep track of how much money is designated for Profit, Owner’s Pay, Taxes, and Operating Expenses.

So, back to that Owner’s Pay Account. Once you put a percentage of income in it, you then transfer some portion of that to your personal account, which serves as your solopreneur paycheck. When I work with clients, we work to figure out what portion should go into this account. That amount depends on how much the business makes in revenue, and what portion of their personal expenses they want to cover using income from their business. If income in their business varies month to month, we decide on an amount that they transfer to their personal account, leaving the leftovers to act as their cushion during slow months. This way, the business owner receives a steady stream of income, even if their business varies from month to month. This is the solopreneur paycheck.

The Function of Profit

Cordoning off funds for operating expenses and taxes may seem practical enough, but the Profit account is what makes the Profit First system unique. The profit account accumulates and then is distributed quarterly. Business owners are encouraged to use their Profit Distributions to reward themselves for their hard work. This keeps the owner excited about and invested in the business. It also discourages any tendency to reinvest everything back into the business, or over-save.  Rewards can range from a day out to charitable giving, to really anything you want!

In part three of this series, I’ll discuss what applying this model to your business can look like, and integrate all the info we’ve gone over so far. If you’re enjoying this and would like more, check out part one! You can also head to my services page and schedule a call with me. Money mapping is one of my favorite subjects. Come talk about it with me!

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Angela

The In-Depth Guide to Mapping Your Money, and How It Can Fortify Your Business, Part I

Keeping track of your money and where it needs to go may feel like a difficult task. That’s why visually mapping it can be especially helpful. When I work with clients, I help them create a visual flow chart to show where every dollar goes. Today, I want to walk through why I do this, and how you can get started on your own money map.

Simplify Decision-Making

The goal of money mapping is creating a clear visual guide of what to do with every incoming dollar. If you’re confused about where to put incoming money, your systems can quickly get out of whack. By drawing out the paths your money can take, you make it clear to yourself where everything needs to go. You also simplify the decisions you need to make, because you have everything spelled out right in front of you! This way you’re able to take action to put your money in the right place quickly and easily.

For extra points, you can automate some of these transfers each month, so that you don’t have to move everything manually. If that sounds interesting, you might like to read “Pick One of These 5 Tips to Automate Your Wealth”.

How Much Do You Need?

In order to create that map and streamline your decision making, you need to do the math up front. It’s important to think about how much you need for your own pay, business taxes, and operating expenses. When I work with clients, I help them determine these numbers in the process of creating their map. If you want a DIY version, you can check out my articles on financial self-care, which will help you determine your personal expenses and understand how they relate to your business finances. Going through your records and averaging your operating expenses can help you get a good idea of what that percentage might be.

The above image is an example map from Hadassah Damien at Ride Free Fearless Money. In this example, you can see that she’s fleshed out the necessary percentages of income that need to be set aside for savings, taxes, business expenses, and personal expenses. In part 2 of our discussion of money mapping, I’ll talk about Profit First and what these percentages are according to their theory.

From Income to Final Destination

Above all, the goal of money mapping is to know where your money is going every step of the way. From the moment you receive income, to the moment that money is saved for taxes, invested for retirement, or put away for a savings goal – you’ve got a plan. Consequently, this is an opportunity to define those final destinations. Creating a tax savings account and an operating expenses account come in handy here. You can also think about creating savings goals for yourself, and making a plan to contribute regularly to those.

If you found this article interesting and helpful, I invite you to download the first 5 chapters of Profit First! The book has its own suggested money map that I’ll also talk about in part 2 of this series. If you’re into this kind of thing, I’m sure you’ll enjoy the book.

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Angela

There is No Wrong Choice

When you run your own business, you make a lot of decisions, mostly on your own. That grants you enormous freedom, but also leaves you with immense responsibility. This responsibility often hangs over our heads: what if we don’t make the right choice? We stall the flow of our businesses by avoiding tough decisions.

I, for one, have definitely struggled with this. When I was running my jewelry business as a full time project, I often put off making decisions. My avoidance of them was fear-based and emotional. I felt like I had to nail every choice and do everything by myself. Not having anyone else to bounce my ideas off of left me frozen and fearful. You can read more about my experience running my jewelry business here

Since then, one of my major breakthroughs was realizing that there is no wrong decision. No matter what I decide to do in my business, I am always able to learn from that choice. If something I do turns out to be a mistake, I find a way to recover and learn not to repeat the misstep. However, I find that the vast majority of choices I make in my business are not typically so high-stakes. Often, I’m making choices about how to utilize social media, what to include in a proposal to a client, etc. I can agonize over the details, but at the end of the day, every choice I make is just another step in a larger experiment: my business! And the purpose of my business is to support me and my life goals – the choices I make within it don’t need to be stressful or fear-fraught.

What are some strategies that could help you breeze through decision making with your business? Perhaps you can get comfortable trying out systems and ideas on a trial basis. Maybe it would be helpful for you to find an accountability buddy to talk to and discuss ideas with. Perhaps hiring on an employee or contractor and delegating some of your workload can take some of the pressure off. It could be helpful to journal and investigate the fear or emotions that are blocking you from making a decision. Simply approaching your business with the mindset that you can learn from all your choices can also help alleviate this.

Making decisions in your business confidently and with an air of curiosity and experimentation can make your business more fun for you. And really, isn’t that what we want?

I hope this post inspired you to go forth confidently and make any moves you’ve been stalling. Go get ’em, tiger! If you find you could benefit from an accountability partner and you’d like guidance around your financial systems, I absolutely love to support solopreneurs around these things. Head on over to my Services page, and schedule a call with me.

Angela

Image Source: Amy Shamblen