Financial Freedom for Founders: Smart Money Moves for the Self-Employed (video)

Stepping into the world of self-employment—whether as a freelancer, consultant, or business owner—brings with it a thrilling sense of independence, but also a complex set of financial challenges. Unlike the traditional employee route, you are your own payroll department, benefits administrator, and financial planner.

To help cut through the confusion, we’ve distilled the essential wisdom from Lisa Conway Hughes, a Chartered Financial Adviser, founder of LCH Wealth, and author of Money Lessons, following her expert interview on the Sales Pop Expert Inside series. Lisa’s advice isn’t about getting rich quickly; it’s about establishing the financial scaffolding needed to build a resilient, profitable, and stress-free business.

1. Establish the ‘Financial Firewall’ 🛡️

The single most critical step for any new entrepreneur is drawing a clear, unambiguous line between personal and business finances. Failing to do this isn’t just messy; it’s dangerous.

• The Risk: Without separation, the legal structure protecting your business could collapse. If the company faces creditors, your personal home and savings might be at risk.
• The Fix: Open separate bank accounts for all business income and expenditures immediately. Even if you’re a sole proprietor, this is non-negotiable for clarity.
• Act Like a Business: Pay yourself a regular salary from the business account into your personal one. This professionalizes your operation and makes tracking business performance exponentially easier. Lisa notes that an organized business can pay its owner a salary that genuinely reflects their value.

2. Master Your Cash Flow and Build a ‘War Chest’ 💰

Self-employed income is rarely a straight line; it’s often a bumpy road of “feast or famine.” Longevity depends on your ability to navigate these peaks and troughs.

• Know Your Numbers: Conduct an “Acid Test” by analyzing your past year’s business and personal expenses. This provides a realistic baseline for your financial needs.
• The Emergency Fund Upgrade: While 3-6 months of living expenses is the standard personal goal, Lisa advocates for a more robust business emergency fund. Her advice is to work toward a reserve of 2-4 years’ worth of income for proper, long-term security against economic shifts or lengthy sales cycles.
• Seek Predictability: Transitioning to retainer models or subscription services, if possible, is a decisive move to smooth out those income fluctuations, creating the “steady, predictable income stream” that helped stabilize Lisa’s own business.

3. Plan Taxes Proactively (Not Annually) 📅

For many entrepreneurs, the most terrifying financial surprise is a massive tax bill. This shock is entirely avoidable with proper discipline.

• Weekly Check-ins: Don’t Wait Until Tax Season. Dedicate 15 minutes every week to review and set aside tax funds.
• Over-Save: A conservative rule of thumb is to save 25% of all income for taxes. It’s better to have a surplus than a shortfall.
• Beyond Tax: Adopt the Profit First mentality. Set aside another 25% of income into a separate Profit Account. This mandates that you save and plan to make conscious decisions about profit reinvestment or owner draws, rather than only paying taxes and expenses.
• Collaborate Quarterly: Lisa emphasizes the importance of quarterly check-ins with your accountant, particularly as your business evolves or undergoes changes. Don’t wait for them to call you—be proactive.

4. Protect Your Income and Health ⚕️

As a founder, you have no sick pay, no employer-matched retirement, and no paid time off. Your income is tied directly to your ability to work, making protection critical.

• The Safety Net: Explore Income Protection Insurance. This type of policy provides a replacement income if you’re unable to work due to illness or injury.
• Critical Illness Cover: This pays out a lump sum if you are diagnosed with a serious, covered illness, providing a financial cushion during major health crises.
• Pre-Plan Major Milestones: If you know a significant personal expense is approaching (such as a mortgage renewal or a new family member), start preparing your finances years in advance. As Lisa observes, a robust safety net is essential for weathering unexpected life events.

5. Focus on Sanity, Not Vanity: Track the Right KPIs 📈

High turnover (sales) is a vanity metric. High profit is a sanity metric. The financial health of your business is measured by what you actually keep, not just what you bring in.

• Profit is King: Track monthly profit (revenue minus expenses) as your primary measure of success.
• Hourly Income Analysis: Calculate your effective hourly income. This involves dividing your total profit by the total hours worked, including non-billable time such as administrative and marketing tasks. This reveals which activities are truly profitable and which are time sinks.
• Simplify: Financial planning doesn’t need to be complex. As Lisa puts it, it’s simply “monitoring your ins and outs, assets, and liabilities regularly.” Consistent, simple tracking using a spreadsheet or basic software is the foundation for scaling.

By implementing these strategies, entrepreneurs can move from constantly worrying about the subsequent invoice to confidently building a long-term, financially secure business. What’s the one financial move you’ll prioritize this quarter?