How to Organize Your Business Finances
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Your business success really depends on knowing your numbers. This post is to help self-employed people get their business finances in order. I will be covering:
- Auditing Your Business Financials
- Doing some predictions
- Dealing with finances daily, weekly, monthly
- Keeping your personal and business financials separate
- Categorizing your business expenses
- Setting money aside for Taxes
Auditing Your Business Financials
If you’re doing this at the beginning of the year, you should review where you spent your money last year. Are there some categories where you may have overspent? This may be a good time to declutter unnecessary expenses going forward.
Doing Some Predictions
Project Annual Personal Expenses –
What expenses are Needs? Rent/Mortgage, Utilities, Car Insurance, Car Payment, Estimated Food/Groceries, Cell Phone, Child Care if you have kids, etc.
What expenses are your Wants? Clothes, Shoes, Dining Out, Entertainment, Vacations, etc.
What about Savings? Like saving for an Emergency Fund if you don’t already have one, putting money away for your retirement, etc
Project Annual Business Expenses –
What expenses are Necessary? Necessary expenses are money you spend in order to operate your business. If you are a salon booth renter, your booth rent is necessary, so are the products you use to do hair, etc.
There will be other projected expenses that are specific for your industry – – may not necessarily be “necessary” but you may expect that you will still spend money on that category.
What about Savings? Yes, your business needs a savings account “just in case” things happen, or maybe you want to put money away for times when business is slow. This year I’m also starting a PTO account for paid time off.
If you’re a new entrepreneur, you can search on google for typical expenses that you may have in your industry.
Dealing With Financials Daily, Weekly, Monthly
Dealing with your financials daily or weekly will help you find and fix issues such as cash shortages or inventory issues. Waiting until the end of the month might be too long of a wait to tackle any potential problems. It’s a good idea to regularly deposit your cash into your bank account and review transactions – sometimes you may not realize areas where you are overspending. Review upcoming bills and pay them on time.
Keep Your Personal and Business Financials Separate
Keep separate bank accounts for business and personal. Having more than one account can actually help you to stay better organized. Withdraw money from your business account and deposit to your personal and then pay personal bills from that account. Get and Separate credit cards.
Categorizing Your Business Expenses
As mentioned above, yes, it is good to assess whether or not the money you spent on a product or service was necessary or an ordinary expense because it was specific to your business type.
Unfortunately not all of your business expenses will be a tax deduction and I will be doing some future videos on tax deductions.
A good resource you can use as some sort of guideline is IRS Form Schedule C which has some basic general categories for very common business expense categories.
Setting Money Aside For Taxes
I would suggest having a totally separate account such as a business savings just for this purpose so that each time you earn money, you put aside maybe like 25-30% into the business savings for taxes. Even if it all won’t be needed, at least you’re not squandering around trying to come up with the taxes owed at the last minute when you file.
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As a Tax Strategist, Consultant and Educator, I’ve been helping other Entrepreneurs (and Individuals) around the U.S. just like you, save thousands of their hard-earned tax dollars, increased their refunds, and solve multiple tax problems. Beyond taxes, I am your “GPS” to starting and growing your own business. Be sure to download my ebook Taxes & The New (or “Early-Stage”) Entrepreneur: What You Need to Know