How to manage your cash flow when you are self-employed - Video

Today we're going to be talking about cash flow and why it's important for Solopreneurs. Hi, I'm Joe Sasto, a professional chef creator, and like you, a self-employed business owner. First things first. In order to understand cash flow, we need to know exactly what it is. 

Cash flow is the movement of money in and out of your business over a given period of time. Essentially, being able to monitor all your income and expenses in one place. There are two types of cash flow you'll typically see on a day to day: money in, which includes all your income from clients and customers who purchase your goods. For example, every time I sell a bag of Tantos, cook a private dinner, or host a virtual class, the income I earn is money in. And then there's money out, which covers expenses I pay to run my business like kitchen rentals, ingredients, packaging, taxes, marketing and more. 

It's important to understand cash flow in and out. because it's essential in understanding how your business is doing. Just like when cooking, you want to season in layers, monitoring flavor throughout the entire recipe and not wait until the end. Keeping tabs on your cash flow helps you optimize your day to day for future success. Now, I know what you're thinking. How do you analyze cash flow consistently if it's always in flux? 

Always know where your cash flow stands and embrace the bigger picture with QuickBooks Solopreneur. With a bird's eye view of your profit, expenses, and income, you can easily see where your one person business stands in real time. QuickBooks Solopreneur also provides suggestions to help you grow and achieve financial stability based on the business goals you set up. Look for these suggestions on your dashboard, whether you're on the web or the mobile app. 

Now, how do you use your understanding of cash flow in and out to anticipate future business performance? That's where cash flow projection comes in. There are a few initial steps to perform a cash flow projection: 

1. Estimate your sales
2. Calculate when you'll get paid based on your terms and conditions 
3. Estimate your fixed and variable expenses. 

Cash flow projections come in handy for more than one reason. It helps you understand where your money is going and get help, leading you to make more confident and informed decisions and help preempt problems. 

The last thing we're going to talk about today are cash flow statements and how to read them. Cash flow statements are documents that record cash flows. They break down your cash inflows and cash outflows every month or year to help you better understand your business's spending habits. As a Solopreneur, it's important to know all of your business's vital signs and keep your finger on the pulse as often as possible. 

There are three parts of a cash flow statement: operating, investing and financing activities. Operating activities are cash flow statements that track the daily tasks in running your business. So, for me, things like purchasing ingredients and collecting customer payments are examples of operating activities. Now, investing activities include buying and selling company assets. So, for example, if I buy a new mixer or computer for my business, or sell an old fridge or camera to invest in a new one, things outside of my day to day expenses fall under investing activities. 

Now, financing activities are cash flow transactions that create funding for your business, whether it's money from an investor, a credit card payment, or paying off a loan. Those are all classified as financing activities in your statement. 

Here's a handy cash flow formula I like to use to find out my net cash flow. Just remember, operating cash flow + investing cash flow+ financing cash flow = your net cash flow. Maintaining a healthy cash flow, and understanding cash flow, is crucial for any business owner. Having an accounting system makes it easy to track inflows and outflows. 

And that's it. Now you're cooking. Check out the QuickBooks blog resources below to learn more about how to run your business of one with ease. And don't forget to subscribe and like for more Solopreneur tips!