Want to calculate how much income you’ll make this year? It’s super easy and you can do it yourself right now!
1. Figure out how much money you’ve made each month from January through June If you don’t have an accounting system, go through your bank statements and write down each deposit and add them together for each month. On separate lines, write “January $2,000; February $3,000,” etc. Don't worry about expenses. We’re just focusing on gross profit which is before expenses.
2. Take all the numbers (January through June), add them together and divide them by 6. This will give you an estimated per month income. Now, multiply that number by 12. This is approximately how much money you’ll make in in a year.
Here’s an example:
January income $2,000
Total income $14,700
Divide by 6 = $2,450
Multiply by 12 = $29,400
That’s your projected income for the year!
Keep in mind this is super basic. It doesn’t account for launching a new product or service or getting new clients. But it gives you an idea to see if you’re on track to meet your income goal!
You really should save that. What am I talking about? Money, your business's money more specifically. Saving money is important even (especially) for your business. You should save for two things: taxes and emergencies.
Taxes. Most experts recommend putting aside 25% of your gross profits for taxes. Remember this formula:
- Total Expenses
= Gross Profit
Take your Gross Profit number and multiply it by 25%. Set this amount aside for taxes. I recommend a separate savings account so you won't be tempted to use it throughout the year. Use the money to pay tax estimates and any other tax due in April. If you have money left in the account after that give yourself a bonus by transferring all remaining money to your personal account!
Bonus Tip: hire a CPA to customize your tax savings plan and thus save you a lot of time and stress.
Emergencies. The other savings you should have is for emergencies and unforeseen events. Eventually your computer is going to give out or your camera become outdated. Don't wait until these things happen to save or worse yet put it on a credit card you cannot pay off! Use a business savings account to provide a buffer when emergencies arise, clients cancel, or you equipment needs updating. The amount to save will differ from business to business, but I recommend 3-6 months of typical business expenses. For example, if your expenses in a typical month are $500, you should have a business savings of $1,500-$3,000. You may also choose to save additional money if you know a large expense is coming in the near future (like attending a conference or purchasing a course).
Do you save money for your business?
Did you know that your business needs a budget? Yes, just like you need a budget for your personal finances you need one for your business. Managing money is essential if you want to succeed in your business. Part of being successful at this is having a monthly budget.
Yes, I know you're a creative and this is overwhelming. But stay with me. I'll make this quick and painless.
The goal of a budget is to make the most of the resources you have in order to reach your business goals (and probably some personal ones too!). A budget is simply telling your money where to go instead of wondering where it went.
Here are three steps to start your business budget:
Now set up your budget like this:
Remember when you first start your business you will not be able to create a perfect budget. Budgets develop over time. Make an educated guess at the beginning and adjust it every month until you have something that works for you.