How Do You Handle Money Once You Leave the Corporate Cube?
If you’ve always wanted to be an entrepreneur when the time comes to leave the corporate cubicle, do you know how to manage
your money? Whether you choose to leave on your own timetable or are the recipient of some rampant downsizing and reorganization, you need to have a strategy and system for understanding your business and personal finances in this brand new world.
For over 17 years I did what the rest of the employee cattle call did — got paid regularly, managed my finances (in my case very closely), and waited for the next paycheck to come in. It was a pretty predictable cycle in which planning, investing, spending, and floating money was easy. Then, I got reorganized right out of a job which I took as a blessing in disguise to finally get full time into my business which I had been running on a part time basis for several years. But, what about the finances? How the heck do I manage in this brave new world I just stepped into?
As I’ve experienced you really need to know three key things on both an estimated and actual basis.
1) What money is coming in?
2) What money is going out?
3) What do I have in reserve?
It sounds simple but can be a whole new way of thinking especially if you’re used to a guaranteed paycheck showing up at your direct deposit door each week or month.
Before we get to the nitty gritty of how to track all this, it is important to know why you’ve chosen to be an entrepreneur in the first place and how to steer clear of the naysayers and myths that are bound to get you down during the initial transition period from cubicle dweller to business owner. Penelope Trunk debunks some of the entrepreneur myths by saying.
Bad advice #1: You won’t make enough money.
Insane. Who is making enough money at the anything new? No one. The few who pull down six figures at the beginning probably spent six figures on grad school and are paying it back, with interest. So the fatalists who say you won’t make enough money are really telling you to never switch careers, never risk being a beginner, never bet on yourself. This way of thinking will put your career in a coma.
Own the fact that you want more from your life and have chosen to go for it. Do all you can to shift your money mindset.
Know that fear is going to be a big part of your transition. Anyone who says they are not concerned about money and have no fears when they start self-employment full time are crazy. In fact I found this post at IttyBiz that sums it up perfectly:
The absence of fear is not courage. The absence of fear is mental illness.
I laughed out loud at that one…but it is true! We can’t shift what we don’t acknowledge though. IttyBiz’s first step toward handling the fear is spot on:
First, acknowledge it. Get to know it. The worst thing to do with fear is pretend it’s not there. You’re not fooling anyone, least of all fear itself, and by denying its existence you just look like an idiot. Get to the root of your fear. Analyze where it comes from. Find out what you’re really afraid of.
That is the honest truth. I have been working diligently on this issue myself. I have found this program offered by my coach is a great way to move through our fear.
If you’re anything like me, though, as you’re facing your fears and stepping into a position of confidence you’re wondering, “How do I manage the money right here, right now?” After all, transitions can take some time to fully work themselves out. Even when you’re a seasoned entrepreneur, you can still have periods of total panic as Pam Slim points out in a post about work drying up.
Most entrepreneurs who have been in business for any length of time have experienced a heart-stopping phone call or email that changes their mood from easy-going confidence to sheer panic and desperation.
So, where to start? At the beginning…
Managing Money from Day One
Here’s what you need to do (or at least what I’m doing on the advice of my accountant and have found is working quite well) to start getting a grip on the state of your cash flow so you can get on with the bigger tasks of building a business and working through all this inner stuff (fears, transition, obstacles, and the like). Remember to keep it simple but thorough. If you’re anything like me and tend to complicate things, remember that now is not the time to display your most advanced Excel spreadsheet skills or invest in a sophisticated piece of money software.
Using a simple spreadsheet create the following list on the left hand column:
Income
— list all the sources of possible income broken out by category here
— include a line item for money you tap from savings or other investments
— include both personal and business income and mark them accordingly
Expenses
— list all the sources of possible cash outflow and expenses broken out by category here
— include both personal and business expenses and mark them accordingly
Net
— this will be a calculation of the total of Income minus the total of Expenses.
Then, across the top columns make an entry for each month split out as Estimated and Actual. So something like:
January 2008
Estimated Actual
Each month you estimate what all your income and expenses by category will be. When the month ends, enter what actually was spent. You can create some calculations showing you the total net income/expense for each month or get fancy with a few % increase and % decrease columns but don’t get crazier than that. Remember if you’re just starting your business you are already overwhelmed. Don’t create a self-inflicted hell with this spreadsheet. It is meant to help you succeed not proceed to the funny farm.
What I found additionally helpful is to have a few rows at the bottom of the spreadsheet noting the current balances of my main liquid savings and checking accounts that I am using to finance my life and business. It helps me keep an eye on how I am faring with the financial cushion and will help dictate periods when I know I need to focus on finding the short path to money.
It doesn’t have to be a chore, but it does have to be done consistently. Now is not the time to bury your head in the sand. Poor cash flow and heavy debt are two main reasons why such a high percentage of businesses fail. The only way to avoid those pitfalls is to pay attention right from the start.
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Paula Gregorowicz is the Comfortable in Your Own Skin(tm) Coach and you can learn more at her website www.thepaulagcompany.com and blog www.coaching4lesbians.com .
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Hey, thank you so much for both the post and the link.
The biggest thing I need to get over is my fear of the work drying up. I lay there in bed at night, making more money than I’ve ever made in my life — although considering my sketchy employment history, that’s not exactly millions — and think, “Oh my God. What if it all goes? What if we’re going to end up in the poorhouse?”
And the ridiculous thing about it is that I’ve never experienced that before. I always made fun of the whatifI’msopoorIcanonlyeatcatfood people. Now I’m working so hard I haven’t picked up a novel in months because I’m so afraid of missing an opportunity.
My husband finally said to me, “Do you think maybe we can channel that fear into paying off our credit cards? Do you think maybe that might help more than committing to only 4 hours of sleep a night?”
Anyway, thanks again. Off to read the links.
Paula: Michelle Goodman wrote a good book on making the transition from the corporate cube called The Anti 9-to-5 Guide. It’s full of helpful financial tips such as what to do when you no longer have an employer automatically deducting taxes and retirement contributions…