Whether you’re a life coach, math tutor, or engineering consultant, sharing your expertise as a sole proprietor gives you the independent lifestyle you want. Here’s how to ensure that it gives you the financial rewards as well.
The secret lies in good bookkeeping practices. Knowing how much of your income is profit, adjusting the budget to maintain cash flow, sending invoices and paying bills on time, minimizing taxes, and more.
Automate bookkeeping tasks.
Good software, such as Xero (the pro-quality system we use at Xendoo), can relieve you of many hours of labor and the costs of human error. This cloud-based platform automatically imports bank transactions to your books, generates profit & loss reports, enables digital access from any internet-connected device, sends invoices and reminders, tracks payments, and much more.
Collect the right data.
Which activities and which clients are bringing you the greatest return on investment? How do you calculate how much to spend on acquiring customers? To answer these and similar questions, you should be tracking these metrics:
• Monthly recurring revenue (for businesses with regular ongoing clients)
• Profitability of your products and services
• Customer lifetime value
Get paid on time.
As we mentioned above, your accounting software should be able to generate invoices, track when they get paid, and automatically record that info in your books. It will also:
• Make it easier for your client to pay through online options
• Send overdue reminders according to your pre-determined schedule
• Help your business look more professional
Consider requiring advance payment.
Avoid getting burned by deadbeat clients with a contract that stipulates partial or complete payment in advance of the service. The contract should detail every aspect of the service to be provided so that you don’t end up giving away extra hours of work due to mind-changing or hand-holding.
Improve cash flow #1: reduce expenses.
A coaching business doesn’t have as many expenses as a retailer or manufacturer. But you still have some, and they should be accounted for. Otherwise, you’ll never know why your bank balance keeps coming up short. Track how much you spend on:
• Office expenses (rent, utilities, supplies)
• Coaching related materials that you provide to clients
• Travel (plane tickets, restaurant meals, gasoline)
• Debt servicing (interest, bank fees)
• Equipment depreciation
• Subscriptions (software, magazines)
Improve cash flow #2: increase income.
In other words, get more clients and/or increase the value of the ones you already have. To bring in new business, your marketing plan should include:
• Lead generation from targeted prospect pools and client referral programs
• Sales funnel touchpoints
• Social media presence
• Monitoring results so you can ditch the underperforming strategies
To get more business from current clients, be sure you’re maintaining your service standards, giving them more than they expected, and finding bigger problems to solve so that you can charge higher fees.
Generate meaningful reports.
Your accounting software can be a big help in understanding where your business stands in reality as opposed to what the budget says it should be. You’ll need these reports:
• Monthly profit & loss statement
• Monthly balance sheet
• Monthly cash flow statement and forecast
• Chart of Accounts customized for your business
• KPI (key performance indicator) tracking
Plan for large purchases.
The day will come when you want to overhaul your website, create an online course, or cover lost income due to illness. If you don’t have at least some of the funds on hand, you could be risking your whole business. Keep your long-term savings in a separate bank account, so there’s less temptation to draw on them for everyday expenses.
Decide how to get extra help.
You may have started as a one-person operation, but as your business grows the workload will quickly become overwhelming. You may choose to add employees to support your core business, such as assistants or sales reps. Or you could outsource areas of the business that are not your expertise, such as bookkeeping.
Xendoo specializes in small business accounting, from real-time bookkeeping to timely financial reports to tax prep. By taking all that work off your plate, we let you get back to the coaching activities you do best. Check us out with a one-month free trial