014 - Cash Flow Management - How to Properly Save for Taxes and Pay Yourself
On this episode of the podcast I dive into Lesson 7 of my series on the tax basics and legal fundamentals for drag queens and LGBTQ+ entertainers. Today's lesson is about cash flow management, or as I like to call it, the client to piggy bank pipeline.
If you're new to the series, take a pause to check out my intro episode and then Lesson 1 of the series. Missed the most recent lesson? Check out Part 6.
Prefer to watch your podcasts? Check out the Business of Drag podcast on YouTube.
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The client to piggy bank pipeline explains cash flow management best. Someone hires you or gives you a tip, you get that money, and then what happens to that money? Does your cash get caried around and spent? Does it (hopefully) go into a business bank account? Are you setting a certain percentage aside for taxes? What about savings and retirement? Are you paying yourself from your business account to your personal account? This system is the goal of cash flow management and is what we're diving into today and what I cover in my book which you can order here. Want to dive deeper into cash flow management and taxes? Get the Business of Drag basics course. You'll be prompted to buy it at checkout when you download my free bookkeeping template.
The first step in Cash Flow 1.0 is to put your tax savings on autopilot and built a habit of paying yourself regularly, not just transferring money to your personal account when you need it.
To set up your tax automation, you want to set aside money from each paycheck or money you collect in tips towards your taxes. If you sign up for my preferred banking system, Novo (not sponsored though I do get a referral fee) you can easily set aside your tax flow savings in their Reserves system. Reserves are basically folders to organize your money and earmark it for certain things, like quarterly estimated tax payments so all that money will be saved when it's time to go online and pay the IRS each quarter. Novo is free and does not have a monthly cost. You can even automate the savings so a percentage of each deposit goes directly into your reserves.
I have 25% set aside for taxes and 5% set aside for savings in my own business bank account. The purpose of the business savings is to have a slush fund for big projects like redesigning your website. Earlier in my podcast I showed you how to calculate how much to save for quarterly taxes. This is where you would apply that to save a percentage from each of your payments. I cover this in greater detail in the Business of Drag basics course.
You want to pay yourself on a set, regular basis. I recommend every Friday be pay day. On pay day, multiply your revenue for that pay day by your current profit percentage. Calculate this percentage and then transfer that amount. What's left in your business bank account is what's left for expenses. Don't reinvest your personal money in your drag, use the money you left for expenses to buy your wigs and new outfits. When we allow our personal payments to suffer when we need money in the business, it's time to make more money so we don't get complacent in bad habits of not paying ourselves.
To recap:
1. Open your bank account
2. Estimate how much you should be saving for taxes and set up your saving automation
3. Every Friday, do your cash flow system, log your bank balance, run your cash flow
If you're going to take anything away from this series, I want you to take away this lesson as I think it will be most impactful to your business.
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𝗖𝗢𝗡𝗡𝗘𝗖𝗧 𝗪𝗜𝗧𝗛 𝗠𝗘
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