You have challenges that most people do not understand. You make an amount of money (revenue) that most people do not understand. They think you must be rich. But when it comes to spendable money, you have less than they do.
In fact, I feel a little poor right now. I had three months without a project last winter. I am behind on several things still. But luckily my revenue, and profit after expenses, are decent enough to catch up at a pretty good clip. Still, by the time I am done catching up, I may be between projects again. I may be short on money to pay some bill, credit card, expense, in a manner that the creditor would approve of.
My best advice when it comes to finance is to make sure your margin is something you can live with through the good and the bad. Your margin is your profit beyond expenses. Or better put, profit divided by revenue. Often we underestimate what our expenses are or do not include all expenses in our calculation. Perhaps you do not include time off. Or you do not include management expenses but only project expenses. Best to calculate a margin you can live with and update it often when things become more tight than you expected.
What else? I talked with my brother-in-law about paying myself once a year via payroll, but found the taxes withheld to be a bit high. Who gets one paycheck a year? Sometimes the guy at the top does. The reason you might want to do this is to conserve cash until the end of the year when you really know what you can get away with paying yourself.
I also have a new appreciation for taxes. For instance, the more you spend, the more you pay in taxes. And I am talking about personal income taxes. The more I spend personally, the more I am taxed. It is better if my spending can be expensed to the business. Or if I can save the money in a tax deferred account rather than spend it. For those of you who receive a regular paycheck, this may be completely foreign to you… but when you have the option to pay yourself less, you really think about the money you spend. You think that latte at Starbucks costs you $4.75? Nope. More like $7.50. Think your car cost you $20,000? If you paid in cash it is more like $28,000. Every thing you spend that is not tax deductible has income taxes (as well as sales taxes) attached.
People sometimes think I am a little crazy to track my expenses like I do. I am constantly trying to beat what I spent the previous week on travel. Less on lodging, food, gas, everything. I tried slowing down one week to improve my gas mileage. I am usually buying food at the grocery, staying at the cheapest possible place… well I am paying all of my own travel expenses right now. If I can save $50 a week even, this is a pretty good amount of money. Think about it… that is $2,400 per year. Good business people watch their expenses like a hawk and make sure they keep improving the bottom line. Why? Because it is a very short distance between a good year and a bad one.
If you think all of this is mean to scare you non-business people, you would be wrong. Being in business for yourself is very liberating. You are the only one you have to answer to.