Erica Gellerman is a born entrepreneur. Though she's dipped her toe in the corporate pool (Amazon... I'll bet you've heard about how fun they are to work for!), she decided working for herself is more her speed. A CPA with an MBA, she's one of those entrepreneurs who you'll never hear saying she's "not good with numbers." And not only that, she's good at explaining numbers in a way that make non-numbers people (like, for example, me) get it. Here's her straightforward, no-nonsense advice to slaying your financial fear dragon. Take it away, Erica!
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You’re a CPA with an MBA and probably have a lot of other abbreviated titles that mean you’re “really good with numbers.” Has this always come naturally to you?
Yes and no. I was always good in math classes and have a pretty easy time digging into the numbers and thinking about how to strategically grow a business.
But the struggle is real when it comes to actual day-to-day organization and money management. Like most people, I don’t love to budget or do admin money management tasks, like invoicing and logging expenses. I’ve worked really (really, really) hard at managing that side of business because I know with that out of the way, I can focus on big picture, strategic goals and numbers, which is where my real passion lies.
So you used to work at this little place called Amazon (read about her experience here). Lately, I’ve heard all sorts of nasty things about working there. Was the work environment what pushed you to start your own biz?
This is actually not my first company! I’ve always wanted to be an entrepreneur and I started my first business (aside from my childhood ventures) with a fantastic friend renting bridesmaid dresses. It was a crash course in small business ownership because we were in it every single day.
When my husband was relocated to London, I took a much less active role in our business - being 5,000 miles away made it tough to work on the product-based business. I went through a moment of panic where my income and identity changed and I wasn’t sure what to do. No longer having a paycheck or an income source sent me sprinting back to a corporate job. I started working in marketing for Amazon, even though deep down I knew I’d rather start another business.
Right before I started with Amazon, I remember telling my husband that I hoped I either loved it or hated it. I didn’t want there to be any in between where I felt trapped in a semi-cushy job because I liked the stable paycheck and felt like I could tolerate the work.
There was no in between with Amazon and almost immediately I knew I hated it. The work environment, the travel schedule, and the job itself was completely opposite of anything I wanted in my life. I knew that I needed to get out and I started reflecting on what I liked, what I was good at, and what I wanted to do with my career.
After a few months of brainstorming, a friend from business school reached out to me for advice about starting her business. At first I didn’t know why she wanted to talk to me (here I was miserable in my corporate job), but when we got on Skype I spent 90 minutes dumping out all of this information I didn’t realize I had. We looked at her business model, her revenue model, talked about the basics of setting up her books, how to position her company, and how she should price her product.
I hung up energized and happier than I had been in months. I realized that at Amazon I was so desperately unhappy. Talking about money and business with awesome, ambitious entrepreneurs made me come alive. I began brainstorming what I could do with this when I left Amazon. Had I not hated Amazon so much, I might not have realized exactly what I wanted to do.
What exactly do you do?
I’m a coach and consultant for creative entrepreneurs. I focus on building, managing and growing awesome businesses that treat money and profit as a strong foundation and base, rather than an afterthought.
Aside from 1:1 consulting, I write about business strategy and management on my website.
I think many people (ahem, me) have a lot of anxieties around money. I understand that having a grasp on my financial situation is important… so why do I keep burying my head in the sand?! Convince me that managing my money is not only important, but that it doesn’t have to be (and can even be fun)!
To be totally honest, there are some parts of managing the financial side of your business and life that will be boring. For me, sending invoices, logging expenses, and tracking myself against a budget will never be fun. I have to bribe myself to do it weekly.
But while that part of things isn’t fun, the freedom and confidence that comes with having a solid understanding of your financial situation is really exciting. When you have the basics of your money under control, you’re empowered to make the right decisions. To work smarter, not harder. And to invest in things that will actually make your business grow.
For example, by having the basics under control, I’m able to feel confident in decisions: knowing when I can hire an employee, traveling to an expensive conference I’ve been dying to attend, and hosting a fun meet-up with my fellow entrepreneurs. I’ve also been able to get really comfortable with knowing what my time is worth, pricing, and negotiating.
But getting past the boring basics and to the confident, exciting part of managing your business can be hard. You bury your head in the sand for the same reason that I keep eating brownies instead of going to the gym. Just because you know you should be doing something doesn’t make you actually do it.
To get past this, focus on starting small to make yourself work on the not so fun part of managing finances. Give yourself small tasks to start with, like opening an account for your taxes, rather than the expectation that you’re going to sit down for four hours and get everything under control.
Consistency is also key, so you don’t end up feeling overwhelmed. Friday afternoons I know I’m not at my most productive, so I set aside 20 minutes to catch up on finances. I send invoices, pay bills, log expenses, check account balances, and make any necessary transfers. And when that’s done the weekend can start and I can have that glass of wine that I know I deserve.
My transition from a regular 9-to-5 office gig was gradual. My business and personal expenses are a wee bit intertwined—for example, I signed up for my web hosting two years ago with my personal credit card when my blog was a hobby, not jobby. What are three tips you’d give a newbie entrepreneur who’s setting up business finances for the first time?
Start putting away money in a separate account for taxes on day 1. You’ll need to file quarterly estimated taxes and having to take that money out of your checking account when the bill is due is too painful.
Open a business checking account and start separating your personal from your business finances as soon as you can. The sooner you start separating things, the easier it will be to manage money in your business and personal life.
Start working on your finances slowly. There are 85 things on your to-do list and there will never be enough time to dedicate a full day to getting organized with your finances. Don’t let that stop you. Find 20 minutes a week to doing small things to get yourself on track.
Working for yourself is awesome, but most of us don’t have easy systems in place for retirement savings, paying taxes and health insurance. What some rules of thumb for putting these long-term financial plans into place?
The easiest way to start your system is by setting up separate bank accounts. To start, set up the following accounts:
- Business checking (operating account)
- Tax account
- Retirement account
- Personal checking
- Personal savings
- Business savings
Your business checking should be used for all business income and bills and to transfer money to the other four accounts. Once you’ve paid your basic business expenses, some rules of thumb for transfers are:
Tax account: transfer 25% of your net income into this account first. Uncle Sam needs to get paid.
Retirement account: 10-15% of your net income should be moved into this account next. Your future self will thank you.
Personal checking: pay yourself a paycheck of a set dollar amount (not a % of your income).
Personal savings or business savings: depending on how much you have remaining, you can put some away into your personal savings, your business savings, or leave it in your business checking account as a buffer.
For example, let’s say that one month you have income of $5,000 and expenses of $500. Once you’ve paid your expenses you have $4,500 left for your transfers. You’d transfer:
- Tax account: 25% of net income, or $1,125
- Retirement account: 10% of net income, or $450
- Personal checking: $2,500 (your pre-determined, steady paycheck each month)
- Remaining: $425 to put to a savings account or to leave in checking as a buffer
I wrote a more in-depth article on The Everygirl about setting up a budgeting system when you’re self-employed
Biggest mistake you see most entrepreneurs make, financially.
Paying themselves last. I get it. I did it. And sometimes you can’t help it. But you are your best employee (often your only employee) and if you can’t focus on growing your business if you’re not paying yourself enough to make rent.
And can I get a bonus second mistake? It’s pricing. A lot of people really struggle with setting prices confidently. I see a lot of people under-charging or never raising prices. If you don’t make pricing a priority, you’re likely leaving a lot of money on the table.
What are your favorite tools for tracking money?
In my work life, I use the Wave app for bookkeeping. It’s free (amazingly) and it allows me to invoice and keep track of my income and expenses easily.
In my personal life, I actually don’t use a program to actively budget. I’ve used YNAB in the past and I plan to start using it again for my business budget. But over the last year or so I’ve ditched the personal budget monitoring and it has made things a lot simpler. I transfer what I want to save into savings accounts immediately after I pay myself and leave the rest in my checking. I spend the rest of the month living off that remaining amount.
Since I’ve already put aside what I want to save, I don’t feel guilty when I spend money for the rest of the month and I don’t need to keep checking in on my personal budget. I can only spend what I have in my checking and once it’s gone, it’s ramen only for dinner until my next payday.
What are three things you wish everyone knew about managing their money?
1.) You don’t need to have your money management game set up perfectly all at once. That’s overwhelming. Small steps and good habits create enormous change.
2.) Day to day money management can be a drag. But once you have it under control you can use that foundation to make really smart, informed decisions that are exciting and grow your business (and yourself) to a whole new level.
3.) Making a small amount of money does not make you a failure and making a large amount of money doesn’t make you a crook.
A lot of people struggle with the idea that if they’re not making a ton of money right now, they’re not truly successful. Your worth is not tied to your income.
On the flip side, I’ve seen people hesitant to charge what they’re worth because they feel guilty that they’re somehow conning their clients into paying them. If you create quality work that you’re proud of and your customers or clients find great value in, you’re not a scammy con-artist.
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Want more super-smart, easy to digest financial advice? Check out ericagellerman.com (and you can follow her on Twitter at @ericagellerman). Erica is also offering free tools for Small Steps That Matter (for your business finances). Once a week for 5 weeks she'll send one small step with easy to follow instructions that readers can take to work on their business. Sign up! I know I am!
PS Speaking of money, which number would you be more likely to share-- your weight or your sallary?
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