Managing Your Finances as a Digital Entrepreneur: A Guide

Managing Your Finances as a Digital Entrepreneur: A Guide

Finance management apps are a boon to all those willing to manage their business swiftly. If you are an entrepreneur or a prospective startup owner, know how to manage your finances.

Becoming a digital entrepreneur is an excellent business opportunity in the current market. Digital commerce can be much simpler to establish, manage, and scale. Without the costs and complications that come along with brick-and-mortar shops, inventory, and office space, you’ve found a way to create a lucrative opportunity, while avoiding many of the challenges other businesses face. Not to mention, you dictate you’re your own boss. 

Investing in an online business is a smart move—according to Nasdaq, studies show that by the year 2040, eCommerce will account for nearly 95% of purchases. However, it’s anything but easy. You’re still responsible for running a full-blown business after all.

And, like all business endeavors, there is a lot of financial risks involved. Not only that, but smart financial decisions are the key to making your digital business successful and achieving the growth you desire.  

Whether you write your own e-books, develop apps, provide online courses, or build websites this guide to managing finances as a digital entrepreneur is for you. From common mistakes for digital entrepreneurs to best practices for business financial management, these tips can help you make sound fiscal decisions for your business. 

1. Use Accounting Software

One of the most time confusing and complex aspects of managing your digital business is financial management. If you don’t have a background in finance, figuring out standard bookkeeping and accounting practices like how to categorize transactions, balance your books, and generate financial statements can be frustrating and time-consuming.  

To help you streamline these processes, ensure your books are accurate, and keep everything organized, it’s highly recommended that you use accounting software and finance automation. Accounting software can automatically sort transactions, provide you with weekly financial updates, process invoices, accurately complete calculations, and create financial statements on your behalf.  

If you use cloud-based software, you can enjoy the peace of mind that all your financial information is secure. This will also mean that it’s accessible from any device—so you can check-in on your finances at any time. 

2. Carefully track all expenditures

Of course, there are inevitable expenses that come with running any kind of business, even a digital one. However, it’s important to have a thorough understanding of how much money you’re investing in running your business, to ensure you’re not putting yourself in the red.

For example, if you run a blog, there are certain costs like web hosting that are fixed, while others like investing in products to review are variable. You can adjust how much you’re spending on products in the beginning, if you find that you’re overspending compared to how much you’re earning. 

Keeping close track of your expenditures is important in order to:

  • Determine whether your business is profitable 
  • Get a clear view of your monthly cash flow 
  • Set proper pricing for your digital products and services
  • Create a realistic budget for your business 

As a digital entrepreneur, you are also the one responsible for making sure your business taxes get paid in full and on time. While taxes are an unpleasant part of running a business, there are opportunities to lessen that burden, like deductions and credits. If you open a business bank account, you'll have all your financial information in one place. This way, you can easily track your expenses and income and run payroll from one account.

Here is a list of common deductible business expenses to give you a starting point for what you can write off.

3. Keep Business and Personal Expenses Separate

As a digital entrepreneur, it can be tempting to keep the same bank account, especially when you first start out. However, it’s essential that you open a business bank account and keep business-related income and expenses separate. 

Mixing your personal and business expenses makes it more complicated for you to see how profitable your digital business model is and it can cause trouble for you down the line when it’s time to file and pay your taxes. You should also open a business savings account where you can set aside money for future expenses, like investing in certain tools and technology to improve your offering. 

4. Automate Invoicing

While a lot of digital businesses require payment upfront before getting access to the content or service—enrolling in a class, downloading software, etc.—that’s not the case for all digital services. For example, services such as web development, graphic design, content writing, and so on, are usually not paid for upfront. 

This is because they often require back and forth, revisions, and other aspects of workflow that complicate pricing and the client’s willingness to pay. If this is the case for your business, you probably give the client a quote upfront that you agree on but don’t send the invoice until the project is delivered and finalized.  

This process makes sense, but the problem is that invoices often go unpaid. In fact, in the U.S., about 11% of invoices are paid late to small-and-medium-sized enterprises. When this happens, it not only requires your time and attention to follow up (often repeatedly), but it interferes with your cash flow—and in more severe cases, the client may avoid payment until you forget and you never even get paid for your work.  

To help avoid this common conundrum, you can automate invoicing with tools like GetYooz. This way the invoice is sent directly to them, reminders can be sent based on your settings, and when they do finally pay the invoice, it will be processed immediately. 

5. Set Realistic and Measurable Financial Goals

As an entrepreneur, it’s likely you have big goals for your business. Of course, growth is always at the forefront of your mind, but achieving it isn’t as easy as pouring a bunch of money into your business and hoping for the best.  

To grow your business in a way that’s manageable and profitable, it’s important to break the big picture down into smaller parts so you can create action plans and make progress towards your business goals. Some examples of effective goal setting include:

  • Earn $X in sales each month 
  • Increase sales by $X in the second quarter
  • Capture X leads per week 
  • Bring on X new clients per month 
  • Increase revenue by X% this year 

Once you have your goals laid out, come up with a plan to make those numbers a reality. This could include increasing your marketing efforts to increase leads, focusing on upselling current clients, expanding your service offering, etc. 

6. Experience the Advantages of Smart Financial Management

With these tips in mind, you can make some improvements to how you manage your business’s finances. Don’t fret if you haven’t been doing these things, running a digital business is accompanied by a huge learning curve.

However, by incorporating these practices now, you can right the ship and set yourself up for success in the long term. Keep in mind that every business—and every entrepreneur—is different, so don’t force practices that don’t work for your management model. 

Sam Makad is a business consultant. He helps small & medium enterprises to grow their businesses and overall ROI. You can follow Sam on Twitter, Facebook, and Linkedin.

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