I Overdrew My Business Bank Account

Entrepreneurialism

Oct 22

Earlier today I rushed to the bank. I had just discovered my business bank account was overdrawn, and to avoid an obscene overdraft fee, I deposited cash to bring it to the positive.

Many of my annual expenses hit over the past few weeks, and I was waiting on a payment that would have covered them.

This wasn’t the first time this has happened to me.

I’ve had several clients pay late over the years, particularly over the past 12 months.

And while I do charge a late fee, that late fee doesn’t help when I’m relying on being paid by a certain day to cover expenses.

There’s a reason why, at least in the U.S., employers are fined if they don’t pay their employees on the designated payday. Because if employees aren’t paid, they can’t pay their bills.

For a business, if our invoices aren’t paid on time we can’t pay our business expenses or ourselves, meaning we likely won’t be able to cover our personal bills either.

What can alleviate the pressure of late payments and unexpected expenses?

Start a business emergency fund

I recommend keeping a cushion in your business bank account and having a separate business emergency fund with 12–18 months of business expenses and owner’s draws.

Yeah, that’s a lot of savings. I used to recommend 3–6 months then 6–12 months, but Covid shifted my perspective.

As a business owner you can’t control your income. Especially when the government shuts down your business.

It’s also more difficult to build a business emergency fund than a personal emergency fund because your business is trying to cover its expenses, pay you, and the IRS. (Remember, self-employed individuals pay higher taxes than their employed counterparts.) There’s more expenses exiting a business bank account than a personal one.

Which is why I recommend building this emergency fund before you give yourself an owner’s draw and become self-employed.

Because I’ve made this mistake and it led me to overdrawing my business bank account — and having to make owner’s contributions eleven years into business.

Yep, the money I deposited into my business bank account to bring it to the positive didn’t come from my business emergency fund, it came from my personal emergency fund.

Because I no longer have a business emergency fund.

Beep, beep! If I could start all over again, here’s how I’d build my business and personal emergency funds. →

What happened to my business emergency fund

Along with undercharging, my biggest regret when starting my business is that I hadn’t established an emergency fund before quitting my job.

I was in such a rush to become self-employed that whatever income my business received was put towards owner’s draws, not savings.

I underestimated expenses, didn’t anticipate the huge tax bills, and way undercharged for my services.

New business owners also tend to over predict how much they’ll earn, and I was one of them.

I’ve also changed my offers over the years which can be like starting a business from scratch.

Throw Covid into the mix, a few personal emergencies, and my business bank account has taken a beating. Whatever I’ve had in emergency funds has been spent.

I pride myself on being good with money. I paid cash for my first car, graduated from college with no student loans — and $13,000 in the bank — and purchased my house with my husband the same year I went self-employed.

But money is different in business. You’re responsible for expenses, higher taxes, paying for your own benefits (retirement, health insurance, sick time), and income isn’t guaranteed. Even if you do work for a client or make a sale, people may pay you late or not at all.

And I’ve made mistakes throughout the years too.

I paid for vanity marketing, sunk too much money into Facebook and Google ads, and redecorated my studio office — two months before moving out. (I hadn’t planned on leaving.)

I put money into the above with the expectation that it would bring me a return on investment. (Or in the case of my studio office, feeling more inspired and motivated while working.)

My business income took a major dip during Covid, and while it’s making a comeback, it still hasn’t matched my top revenue year of 2019.

A Lot of Expenses + Less Money In = Nothing Left for Emergency Savings

Yes, I teach business.

I’ve hesitated sharing about my years of business struggle because I teach business and marketing via online courses, Medium posts, Instagram reels, etc.

If my business overdraws its bank account and isn’t always able to pay me, who am I to teach others how to start and grow their businesses?

It’s something I’m still grappling with, but a friend of mine — who also owns a business — shared this:

Money isn’t the only indicator of success, and enduring hardship isn’t always a reflection of your ability to run a business. And because of that, there are many business owners struggling themselves, looking for advice. Who are they going to listen to and be inspired by: Someone who’s experienced success from day one or someone who’s been where they are?

Thanks, Pat.

How I’m Moving Forward

I’ve felt so much shame over my business finances and have considered closing up and getting a job. But something keeps me going.

I believe in my business, I believe in what I do, and even though I’ve experienced struggle, I believe they were given to me so I can relate and be a better business mentor.

I know how this feels, I know the stress. It sucks.

But I’ve learned that the state of your business isn’t always a reflection of your ability to be in business.

Business is volatile and you can’t always control what happens. You can have an amazing offer and do your absolute best but still struggle financially.

Some businesses are easier to grow than others. Some business owners experience more success than others and not necessarily because they’re better at business.

Many factors determine a business’ success including the knowledge of the owner, the type of business, where it’s located, the market/economy, who the business owner knows and their connections — but above all — their motivation, dedication, and tenacity.

Listen to any podcast interviewing a successful business owner and they’re likely to cite a time when they too experienced struggle. They’re on that podcast because they kept going, didn’t give up, and eventually their business took off.

Quick tips on how to keep going

Review your expenses

Declutter. Simplifying my systems and combing through my expenses allowed me to reduce subscriptions and other bills. Do the same for your personal expenses.

On another note, decluttering my personal belongings inspired me enjoy living simply and wanting less, which saves money too.

Which means don’t pay for another course, program, or certification. Your business is good enough, you don’t need to pay to learn more to make more money. Paying for continuing education puts more strain on an already struggling business. Instead, meet with business friends to ask for feedback and ideas and get free business advising (more on that below).

Please don’t fall for a program that promises a huge mindset shift that will bring a massive boost in revenue. Oftentimes these programs cost several thousand dollars and the stress of that payment will counteract any mindset shift you’re hoping to achieve. There are many amazing books on mindset that cost way less.

Split expenses, when possible. When I had my studio office I shared it with another business owner and split my internet fee with another tenant in my building.

Boost income

Offer services/products that were successful in the past but you discontinued because you didn’t enjoy them, or offer new services/products that don’t require start-up costs and you believe will be effective. Just make sure they align with what your business currently offers.

I’ve seen business owners pay for a training or certification (see above) so they can offer a new, not totally related service, hoping it will bring in customers. Too many offers dilutes your business and confuses customers, making them less likely to buy.

Collaborate with other business owners on a package deal or event.
Meet with your local economic development center for ideas and to learn if you qualify for grants.

My Small Business Development Center (SBDC) advisor told me about the Paycheck Protection Program (PPP) and I learned about another Covid grant from my county’s economic development center.

Meet with your small business friends. Mentioned above but worth repeating. These conversations can inspire ideas and maybe even collaborations, but above all, can give you the motivation and strength to keep going.

Owning a business is not the easy path. It will force you to confront fears, promote yourself on a whole new level, and learn more about the tax code than you ever wanted to.

But nothing can give you the joy and satisfaction of building something that’s able to support you while making a difference to your clients and customers.

Keep going.

If you enjoyed this post, buy me a coffee or connect with me here.

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Just getting started in business and looking for a roadmap? Check out my Begin Your Business online course. We’ll cover everything from pricing to forming an LLC, assembling your team to getting your first clients, and everything in between.

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