Creatives make several money mistakes that end up putting them in so much trouble. From running the same account for personal and business purposes to failing to keep proper financial records. The list is endless.
While every business is different with its challenges, there are certain financial rules that you shouldn’t break. It is important for creatives to stay on top of their financial and money management game. The only way to do this is to avoid making money mistakes. We have come up with 5 common money mistakes that you should avoid and how to overcome them.
Money Mistakes You Should Avoid as a Creative
The mistakes outlined in this section have plagued creative entrepreneurs for several years. Overcoming these mistakes will improve your finances and give you a better chance of success. Here are some top money mistakes that creatives make and how to overcome them.
Mixing personal and business expenses
Just because your business isn’t registered as a company doesn’t mean that you shouldn’t separate your accounts. Handling personal and business expenses from the same account makes it difficult to track your transactions. You have to scroll through so many transactions to locate the ones that are linked to your business. This is very tiring.
Separating your accounts comes with several benefits. Asides from easier tracking, it also ensures that you enjoy personal privacy. Let’s say that you have to submit your statement of accounts to your accounts officer for business purposes. They’ll end up seeing all your personal transactions as well.
Keeping separate accounts also helps to protect your business assets. This is why you also need to register your business. It is not uncommon for creatives to run businesses without registration. This mistake has ripple effects on your business in the end.
No clear picture of business expenditure
Here’s a quick question for you. How much do you require to run your business every month? If you aren’t sure about this, you are not alone. So many creative entrepreneurs are in your shoes as well.
The danger of this is that you are likely to spend based on your current account balance. As such, you hinder yourself from planning for your business. The challenge with this is that you end up stifling the growth of your business.
Another issue that you face with not knowing your business expenditure is inaccessibility to financing opportunities. Without a clear picture of your business expenditure, you can’t submit applications for financing. Such applications require you to provide financial records.
How do you solve this problem? The first thing is that you must have proper financial records. This gives you a clear picture of how much you spend on the business over specified periods. Also, you can invest in an accounting app to track expenses and revenue.
Poor bookkeeping practices
This is a very common mistake among creatives. Many times, we tend to neglect daily, weekly, and monthly bookkeeping operations. This is mostly because we are overwhelmed with so much work that we want to push bookkeeping until later. In the end, we forget to handle the bookkeeping operations or we are just too tired.
Of course, bookkeeping is not fun but it is very important to your business. You must have records of your daily transactions to properly manage the finances of your business. The more you are able to keep up with daily records, you’d find it easier to deal with weekly and monthly accounting.
Asides from this, it will help you to figure out your profit and loss statement for the year easily. Now, you can compare these records against your income goals for the year. This way, you’d know if you are meeting your financial goals or not.
It is normal to undercharge at the beginning of your business. This is totally acceptable because you are only trying to gather patronage. You cannot continue to undercharge else you’d run down your business. Every creative should have a plan to raise their rates as their client base grows.
An easy way to do this is to increase your rates on a regular basis. According to Chris Do, if you don’t push back on your rates regularly, you’d end up undercharging. He presents us with a simple formula to deal with this issue. Always aim higher than what you expect a client will agree to without being excessive. It will be surprising how many times they’ll say yes.
To be honest, raising your rates is not an easy task. However, if your business is going to be taken seriously, you need to take this step.
Failure to set up a cash collection system
A large percentage of small businesses face this problem. We all work hard to generate revenue but it is really cash that helps to run the business.
Without cash, running and conducting business will be almost impossible.
A study by a US-based bank states that about 82 percent of businesses that close down suffer from cash flow issues. Another study shows that up to 29 percent of all new businesses shut down because of negative cash flow.
We cannot emphasize enough how important cash is to your business. This is why you need to develop a cash collection system. An invoicing app could be the solution to your problem in this regard. Such apps create invoices on your behalf and send them to your clients. It also sends reminders when payments are due.
This way, you wouldn’t have to bother yourself with cash collection and you can focus on running the business.
While it is almost impossible to eliminate money mistakes completely, you can avoid them as much as possible. Even when you make them, it is important to know that you can fix them. All you need is guidance and support. We have shown you some of the most common money mistakes among creative and how to conquer them. Which ones have you fallen victim to? Share them in the comments section.