Even after all of these years of running my own business, I still get fidgety when its time to think through money issues. You know why?
Here's the truth: I don't want to know what I'm really making.
That's kind of embarrassing to say, but its the truth.
Let's say I'm earning $100 per month for lessons. (This is just an example -- um, because $100 is easy for me to break down, with all of my awesome math wizardry).
Ok, I'm earning $100 per month. I get all excited because I have 10 students and think that I'm making an even $1000 per month. Wahoo! $1000 for 10 students - great money!
And if I just stay there, doing easy math -- what I charge x how many students - then I get to keep thinking I'm making tons of money.
But, when I actually do smart math, and think through all the different expenses that come with being self employed? Yep, that picture changes really fast.
For instance, when I think about self employment tax and how I need to be setting aside approximately 25% of my income? Suddenly, I'm making only $75 per student, and now only $750 per month. That's a big difference.
Oh, and then I need to set aside money for annual piano tuning and tech repair. (My piano tuner wants me to get it done every 6 months, but I can't afford that.) So, that's another $40 per month I need to save.
And then, my bank charges me fees for my business checking account (and that's after I shopped around to find the lowest fee rate out there!). Oh, and I have to set aside money for the tax preparer, because he ups our preparation fee a bit each year due to the Schedule C I have to file for the business. Between just those two things, that's another $30 per month.
When I do my P&Ls (profit and loss statements) for a few months, I realize that I'm actually spending $40 per month in printer ink and paper, rather than the $20 I had budgeted. And the expense of that special thing in my studio this month cost me $30 for all of the supplies, etc.
Finally, I ran a few FB ads for my business, and while they were definitely reasonably priced, it still cost me another $20 for a month of ads.
So, for those of you with quick calculators in your brain, have you been adding up all of these expenses? Yep -- you're right: a whopping $430 out of my income.
And that doesn't even include my tithe (charitable giving) that I give from my income and any business savings that I should wisely do as well.
Basically, my simple math? I like it. It makes me happy. It makes me excited that I'm making $1000 per month.
My smart math? I don't like that as much. It shows me that I'm only making $570 per month. That's a pretty big difference and that's the real picture.
So, now its your time to get a bit fidgety. What are you really making very month?
I get it, Piano Teacher Friend. We way prefer the easy math, because we think each and every student adds that much more to our income.
But the truth is, to be wise business owners, we actually have to do the smart math.
Be brave, pull out your calculator and your budget. Even better if you have a P&L or two that show what you've really been spending each month.
Because when we know what we are really making each month, then our other financial decisions are much more accurately informed. So, take a few minutes and figure it out, friend.
Trust me, you'll be glad you did.
For more help with this, in a gentle, humorous, and easy step by step process for getting your business finances in order, check out my resource: "Music Money: Smart and Simple Finances for Piano Teachers."