As a small business owner, there is always something that needs to be done. What I want you to prioritize in your business is managing your business finances. It is easy to get consumed with product development and servicing your clients and putting organizing your finances on the backburner. But, you will literally pay for it in the end. In this article, we give you some easy tips to help you manage your small business finances and stay organized.
Set up separate personal and business banking accounts
I can’t stress this strongly enough. If your funds are mixing and mingling, then it will be a disaster come tax time and for future big purchases like your home. Please ask me how do I know. Open a business checking account and another account for business savings.
You shouldn’t have any business transactions going through your personal accounts and you shouldn’t have any personal transactions flowing through your business accounts. If you are an LLC or corporation this is a basic requirement, but sole proprietor's and even freelancers can benefit from this structure.
It’s much easier to manage your small business finances and know how your business is performing financially.
Set aside money for taxes
This is what your business savings account will be used for. Each month you or your accountant should calculate your earnings before interest and taxes. This is called EBIT. It is basically your revenue for the month minus your operating expenses. Multiply EBIT by 25% to 30% and move that amount into your business savings.
This amount should be enough to cover state and local income taxes, as well as self-employment taxes. This amount may be different depending on your state, so be sure to check with your tax advisor. By setting money aside on a monthly basis, you ensure that you have cash on hand to make quarterly tax payments. Please if you are in business, pay your taxes.
Use an accounting program
Sure you could keep everything in Google sheets or a notebook, but why would you do that? There are a lot of free and low-cost accounting programs available that help you stay organized and they will save you headaches down the road and help you maintain a professional presentation to your clients. Wave is a free accounting software that allows you to organize your sales and profit, invoice clients, manage payroll, and more.
Schedule time to stay organized
Set aside time each week to keep your finances organized. I would say monthly but it is really helpful to stay ahead of it. During this time, you should be adding sales and any other financial information into your accounting software. Also, scanning receipts, filing, reviewing financial reports, paying bills, invoicing, collections, etc. Put it on your calendar and treat it like a priority. In our studio, we dedicate Tuesday to finances.
I prefer to batch process finances, so this top of Tuesday morning to update finances and manage my books and organize finances. Once you get in the hang of it, it becomes second nature.
Remaining organized is so important when it comes to running a small business. You are in business to make money so managing it well will make a difference in your business. Without a system in place, you don’t know if your business is profitable and who's doing that. The tips outlined here will help you stay on top of your small business finances and establish a system that works for you.