I started my own company - here's how I stopped us from failing in our first year

Document created by rachels_1 on Nov 3, 2015Last modified by amara.mastronardi@socialedgeconsulting.com on Dec 5, 2016
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In 2012, along with a close friend, I founded a tutoring company. I had been teaching and tutoring since 2005, and my partner had been teaching since 1999. We knew how to teach. We didn't know how to run a company, including how to manage our finances. Because the company was an expansion of my solo work - my main source of income - the vast majority of the company's earnings went to pay for my rent, food, etc., in the form of a regular payment every two weeks, regardless of our income. That first year my partner didn't even draw a paycheck. By the end of our first year, we were almost dead broke and my partner and I almost dissolved our LLC.

 

So we made some changes: we started paying me half of all income, paying my partner 10% (he did things like pay bills and make sure we were legal, while I was the one who did all the every-day stuff, like seeing clients, managing our employees, etc.). That left 40% of what we brought in in our checking account. But then we had a few clients who needed refunds, and as we grew, we realized we had to spend more on marketing. That checking account, which had begun to look more robust to us, looked weak again. So we adapted again: now we keep money that is probably going to be necessary for refunds in a savings account, along with ten percent of gross receipts. I take home 45% of what comes in, and my partner takes home 9%. I'm taking the next step this afternoon when I go to the bank: opening up a separate savings account for that 10% of gross. As that money accumulates, we'll be able to use it for big, one-time purchases, like the new laptop I need or another round with a marketing consultant. I'm sure that in the next year, we'll continue to refine how we manage our money.

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