"No one starts their own business because they want to manage their books. People start their businesses because they have a passion, a dream they want to pursue."
This sentiment, shared with me by Jeremy Sulzmann, Business Segment Leader of Quickbooks Self-Employed, couldn't be truer.
When people think about running their own businesses, they dream about the desirable aspects of it: owning your schedule, having full transparency into every aspect of how your business operates (because, well, you run it), and deciding which types of clients you do and don't want to work with.
It's the financial aspect of entrepreneurship that feels much harder. Thinking through startup costs, finances, and accounting often holds people back from getting started--or, if they do launch a company, can feel like the most challenging part of the business.
But it doesn't have to. Sulzmann, someone who's passionate about providing entrepreneurs with the resources and innovative products they need to survive and thrive, sat down with me to talk about exactly what you need to know about streamlining and simplifying your finances so that you can have the entrepreneurial life of your dreams.
Laura Garnett: There's a perception that you need to be financially astute to run your own business, yet few people are. As a leader of a financial product that is meant to support self-employed people, what are your thoughts on this perception?
Jeremy Sulzmann: Of course, it's vital that self-employed individuals understand their business's financial standing and cash flow, but it's not necessary for a self-employed business owner to be a financial guru in order to succeed. At QuickBooks, we work tirelessly to tip the odds in favor of small businesses, giving them the advantages they've never had. A huge part of this is simplifying financial management so self-employed individuals can easily track the amount of money they have coming in, their total expenses, and their estimated quarterly tax obligations. Our products help self-employed business owners do all of this, so they can focus on why they went into business in the first place.
Garnett: What are the most critical financial numbers that a self-employed person needs to be mindful of?
Sulzmann: There are a few key numbers that self-employed people should keep a handle on in order for their business to be successful. Tracking income and expenses is essential, as it will ultimately help a business understand their cash flow and overall profitability. Once you've calculated your income and expenses, you can then determine your net income. Calculating net income is one of the first steps to finding your cost of goods sold and contribution margin, which assesses how a particular item or group of items is helping or hurting your bottom line. Knowing this number is crucial for making sound business decisions.
Additionally, I'd encourage self-employed business owners to carefully track all possible tax deductions, including their mileage driven for business purposes. Self-employed persons can often write off costs related to things like business advertising, office space and supplies, health insurance and travel. To do this, self-employed workers should be sure to keep detailed receipts of their purchases so that, come tax time, they have all the relevant documentation they need to maximize their tax savings. This will also help them as they estimate their quarterly tax payments.
Luckily, you don't have to do all this on your own. There are tools out there like QuickBooks Self-Employed that can automate many of these tasks and track these numbers for you over time. In addition to taking some of the work out of managing your finances, these types of tools also help you feel much more confident.
Garnett: What are the pros and cons of hiring an accountant versus managing your own accounting?
Sulzmann: Our research has shown that small businesses and self-employed professionals feel that they are more successful when they are connected to an accountant to help them. The benefit of having an expert behind you ensures you can have more confidence in the financial health of your business.
However, I know that as a freelancer you may not have the financial resources to hire an accounting team to assist you throughout the year. It's still important that self-employed individuals follow the best practices for accounting and bookkeeping. If you don't have a solid background in finance, you may want to consider purchasing a small business accounting software program to help keep your books in order.
Garnett: What are some of the biggest concerns self-employed people are currently having when it comes to managing their business finances?
Sulzmann: A big concern for self-employed people is that they often don't have the safety net of benefits and other forms of support that traditional workers do-- sick leave, unemployment insurance or retirement savings. These are all things that self-employed workers need to budget for, since they are not automatically withdrawn from a paycheck like a conventional employee. Staying on top of business finances helps self-employed workers do this, giving them more peace of mind.
Garnett: How much time should a self-employed person spend thinking or managing their finances? How is this different from the reality?
Sulzmann: Managing your work as a self-employed person can be hectic. Because they're so busy, many freelancers don't invest the time to understand things like taxes. And if you're not an expert on the tax code, you may end up paying penalties, fees and interest on your tax return. I would recommend that a self-employed person spend a few hours every month organizing and managing their finances, as well as taking trainings or classes on how to use financial management tools and staying up-to-date on the latest technologies.
Garnett: What words of wisdom would you offer those that are thinking of making the jump?
Sulzmann: If you have a project or side hustle that you are passionate about and want to pursue-- go for it! Just do so with intention. Build a business plan, download an app like QuickBooks Self-Employed to help you manage your finances, make a work schedule that you can stick to, set goals, and assess yourself. Go over monthly objectives and examine how you did. It's important for freelancers to think of themselves not as employees, but as a business. And much like building a traditional business, being self-employed is both a challenge and an enormous opportunity. The more structure you can give yourself and the more organization tools and techniques you can integrate into your day-to-day operations, the faster you will get off the ground and the more prepared you will be when your business takes off. Furthermore, don't be afraid to fail, because failure often leads to discovering the skills needed to succeed.