Protect Your Profits: A Simple System

Discover how business owners turn financial surprises into growth opportunities.

About five years into my business, I was finally hitting my stride income-wise. I had been paying the minimum estimated taxes, and while I usually owed something, it was never a big deal. But five years in…

That year, I finished preparing my tax returns (I handled them myself) and nearly fell out of my chair when I saw the amount I owed. Surely, I had made a mistake. I sent the paperwork to my tax guy—my CPA uncle—for a second opinion, confident he’d find an error. But his note back was clear: “All looks good, go ahead and send.”

I wanted to throw up. The balance couldn’t be correct, but it was. While I had the funds to pay the bill, I wasn’t thrilled. Without the sales that year, the tax hit would’ve been smaller, but that wasn’t the point. I wasn’t panicked because I had been setting aside a portion of my earnings for taxes all along.

It was a lesson that stuck: financial planning isn’t optional. Whether it’s taxes, emergencies, or growth opportunities, being prepared means your business can thrive, no matter what surprises come your way.

It’s not just about revenue—it’s about readiness.

Running a business comes with its share of unpredictable times, and financial planning is your safety net. From a surprise tax bill to lean income months, building a solid plan for emergencies can help your business thrive while continuing to grow.

Here’s how to create a system that supports your business and peace of mind.

1. Emergency Funds: Your First Line of Defense

Unexpected expenses are part of the entrepreneurial journey. Instead of building a fund solely as a safety net, consider it an opportunity fund. If you have an emergency, it’s there, and if not, you can use the extra funds for something else.

• Reframe the Purpose: Think of your emergency fund as a resource for seizing opportunities, like hiring a much-needed contractor during a busy period or investing in software with special pricing.
• Target 1–2 Months to Start: Traditional advice suggests saving 6 months of expenses, but for many entrepreneurs, that isn’t feasible initially. Start with 1–2 months and supplement with flexible options, like a business line of credit or a high-yield savings account.
• Consistency Over Perfection: Contribute consistently, even if it’s small amounts. The goal is progress, not perfection.

2. Planning for Taxes: No More April Surprises

Taxes don’t have to be a dreaded April surprise. A little planning goes a long way toward making tax season just another month.

• Set Aside 20–30% of Revenue: Open a tax checking account and allocate a percentage of every dollar collected. Keeping this money separate ensures it’s there when you need it.
• Work with a Professional: Not everyone can be a tax expert, and it helps to find a professional who knows deductions and expense optimization to help avoid shocking surprises.
• Stay Current: Tax laws change, and so does your business. Review your allotment plan to make sure you are covering your current obligations. Federal, state, and local all publicize changes to keep up with those.

3. Diversify Revenue Streams

Diversifying your income streams can be handy when projects are low, or there are gaps in the income stream.

• Add Recurring Income: Consider creating recurring revenue, retainer agreements, or membership models. These provide consistent cash flow even during slower months.
• Digital Products or Affiliates: Sell eBooks, templates, or courses that can generate passive income. Affiliate marketing is another way to earn by recommending tools or products you already use.
• Expand Your Offerings: Explore complementary services that align with your main business. Diversifying protects you when one revenue stream slows.

4. Emergency Funds Aren’t Always for Extremes

Emergency funds aren’t just for catastrophic events. They’re also a tool to navigate seasonal fluctuations or temporary downturns.

• Seasonal Adjustments: If your business is seasonal, you might need a larger cash reserve during off-peak months.
• Low-Overhead Businesses: Digital service providers with minimal expenses might benefit more from reinvesting extra cash into tools, training, or marketing campaigns instead of holding excess funds.

5. Don’t Overfund Your Emergency Account

Having an excessive amount in the fun can result in missing the boat on other opportunities.

• Set Your Target and Stop: Calculate your essential expenses, add a 10% buffer, and cap your fund there.
• Put the Rest to Work: Once your fund is complete, redirect excess cash into investments that drive growth. Consider contributing to a retirement account, hiring a virtual assistant, or launching a marketing campaign.

Build a Safety Net, Grow with Confidence

Financial freedom is more than earning income. It’s about creating a financial system that protects you and your hard-earned efforts in your business.

To get started, you can start small, be consistent, and focus on what matters most. Creating an emergency fund and solid tax plan will help you survive when challenges arise.

The key is not to have the perfect plan but to be ready to take action. With the right mindset and system, you can easily overcome challenges as they arise.