Mingling finances is common for small business owners and entrepreneurs. However, putting a system in place to organize your small business finances can help you better understand your earnings and expenses. This can help you make and achieve business goals while ensuring you’re prepared for tax season. Here are a few tips to help you keep your small business finances organized.
Set Aside Money for Taxes
Setting aside money for taxes each time you get paid can ensure you have enough come tax season. Small business owners who don’t properly prepare for taxes may be left with an unexpected tax bill, which can be a costly expense come April. To be safe, consider transferring at least 20% of each payment you receive into a separate bank account for taxes.
By the time tax season comes around, you’ll have a nice amount of money saved. If you end up owing less, you can take the extra money and reinvest it back into your business or take a nice vacation to reward your hard work.
Create Separate Bank Accounts
Creating separate bank accounts can make it easier for you to organize your personal and business expenses. Use a separate bank card for all your personal and business costs. At the end of the year, you’ll find it much easier to add up your payments and costs for each. Opening up an online bank account is an excellent solution when you need faster payments.
Open a Business Credit Card
Some small business owners may choose to open a business credit card to help keep costs separate. It can still be helpful to have two separate bank accounts set up. That way, when you get the bill for your business card, you can automatically transfer the funds from your business bank account. You may need to file a Limited Liability Corporation (LLC) to open a bank account, but doing so offers many benefits anyways.
Invest in an Accounting/Bookkeeping Program
Accounting or bookkeeping programs can also make keeping costs for your business organized easier. These programs are especially beneficial if you have employees on payroll or need to track things like payroll taxes or hours worked. As you scale your business, you may even need to outsource your accounting or bookkeeping tasks.
Reviews Accounts Monthly
The most successful businesses regularly review their income and expenses. This allows them to make any necessary changes to products, marketing, sourcing, or staffing to make the business more profitable. Even the smallest, single-employee businesses can benefit from reviewing their financial accounts monthly.
Additionally, having different bank accounts for your personal and business accounts can make this easier. During these monthly reviews, make sure you consider your expenses, including marketing, SEO, website hosting, or product design. Make sure you compare your costs to your revenue. Identify any areas of improvement and strategies to increase business and reduce costs to ensure you stay profitable all your long.
Pay Yourself
Many small business owners fail to pay themselves and then end up dipping into company expenses to pay their normal bills. While you may have to live off of a smaller salary in the first few years of your business, paying yourself something is still important. This also relieves some of the guilt that may come with taking money out of the business to cover your bills.
Designating a set amount of payment for yourself and any other family members in the business can also help you easily pinpoint when you’re ready to take on an external manager for your business instead.
Create a Budget
Similar to personal finances, creating a business budget is also helpful. Creating a business budget can help you control expenses. Sticking to a budget also requires evaluating certain expenses and whether or not you need them. Create a list of necessary expenses, including building rent and utilities, payroll costs, or inventory. Then, create a list of nice-to-have but not required costs. That way, you can add or remove them based on the businesses’ current revenue.
Know When To Take Out a Business Loan
Sometimes, it may make sense to take out a business loan. However, before doing so, it may be even more important to set up your finances to divide your personal and business costs. Make sure you have the ability to pay the business loan back by the due date to avoid any late fees or penalties.
Budgeting and tracking finances are just as important when you own a small business as it is in your personal life. Taking the time to separate your funds, open a bank account, and prepare for taxes can help you make your business more profitable.