Barry Choi joins us for our Ask the Expert series in celebration of Financial Literacy Month to talk to us about how to best manage your finances as a small business owner.

Barry Choi is a personal finance and travel expert who makes frequent media appearances. His website, moneywehave.com is one of Canada’s top resources for all things related to money and travel. Be sure to check him out on Twitter: @barrychoi

For nearly two decades, I worked at a major TV station as a television director. The pay was good, the benefits were great, and it was my dream job. But I gave it all up in January of 2018 to become a freelance personal finance writer. It was a tough choice, but it was the right call for the goals of my family.

Even though I was a money expert, I still struggled with my finances at times. Not having a steady paycheque is challenging. With November being Financial Literacy Month, I’m sharing some financial tips for small business owners, freelancers, and self-employed individuals.

There is no perfect time to quit your day job

In an ideal world, you’ll hang onto your day job so you can have some steady income while building your small business. The reality is this may not be possible for everyone. Look at your personal situation and see what works for you.

When I left my job, I was already making a decent amount of money from my side hustle. That said, the main reason I decided to go freelance full time is that it allowed me to spend more time with my daughter. When you set some goals or have priorities in mind, knowing when to leave your regular job will come naturally.

Build a cash buffer before you quit

Most people who become small business owners will likely have a fluctuating income, so it’s important to try and build a cash buffer before you quit your day job. Setting aside three months’ worth of expenses is a good start, but if you can save enough for six months, that will give you some breathing space if things go south. The money you’ve saved essentially becomes your emergency fund, which will come in very handy in times of need.

Expenses that you don’t budget for will come up

It doesn’t matter how good you are at planning, expenses will come up that you never budgeted for. As a freelance writer, I didn’t realize that I needed professional liability insurance. I also didn’t factor in the cost of disability insurance. That’s an additional $2,000 I needed to spend.

One time I ordered business cards that cost $400. As soon as they arrived, I realized there was a typo. That was an expensive mistake. Unfortunately, I’ve also had clients who didn’t pay for my services, so I had to write off those expenses.

Keeping your finances organized is essential

This may sound obvious, but keeping your finances organized is essential. How you do that is up to you. Having a budget is a must so you’ll know what your monthly expenses are and how much income you’re making. To keep you on track, use QuickBooks. It’s more than just accounting software. You can use it to manage your cash flow, invoice, accept payments, manage your inventory and more.

Look for ways to diversify your income

Most small business owners or freelancers start with a single income stream, but it’s a good idea to diversify your income when you can. That might be something simple such as offering more services or introducing an online store. In other situations, diversifying your income may require your time to build something out. It may not pay off right away, but if it could pay off long term, it’s likely worth your time to investigate.

Build an emergency fund

If you didn’t build a cash buffer when you launched your business, now is a good time to set aside some money for your emergency fund. As the name implies, your emergency fund is there for emergencies. Setting aside three to six months’ worth of expenses is ideal, so if there’s ever a downturn, you’ll have enough savings to help you get by.

Talk to people who work in the same industry

It’s easy to see the competition as the enemy, but you should think of them as allies. When I first started my career as a freelancer, I had no idea how to price my services. I quoted what I thought was a fair price. When I started to talk to other writers, I quickly realized that I was undercharging for what I was worth.

Connect with people who do similar work to you and have an open discussion about pricing and rates. If you’re experiencing challenges with suppliers or costs, talk to your network and see how they’re dealing with things. When you have a group of people you can trust, you all grow together.

Don’t try to do everything on your own

Self-employed individuals tend to want to do everything themselves, but that’s not always the best way to run your business. If you outsource or hire professionals to help you in areas you’re not comfortable with, you can focus on the things you excel at.

For example, managing your bookkeeping can be easy if you’re using QuickBooks, but when it comes to filing your taxes, you might want to use an accountant. Alternatively, if you want to overhaul your website, it’s likely a better idea to hire a web designer instead of doing everything yourself.

Final thoughts

The tips I’ve shared are meant to be a guideline, but it’s important to note that finances are meant to be personal. What worked for me, may not necessarily apply to you. You know your business better than anyone else, so try to find the solutions that are most beneficial to you.