July 7, 2022
If you’re part of a small business, you may be in over your head when it comes to managing the finances of your organization. After all, accounting can seem like a very complex field, especially if you don’t have any formal training in the subject. However, keeping on top of your small business finances can actually be quite easy – as long as you understand how it works and how to keep things organized and simple.
If you’re running a small business, it can be tempting to simply put all your income into one account. However, because businesses face more financial rules and requirements than private individuals, it’s smart to separate your personal finances from your business finances as soon as possible. Create two accounts: one for your business and one for yourself (or three if you have any other sources of income). Before depositing any funds, clearly label each bank deposit with whether they are personal or business.
Taxes are a big reason why small business owners are stay at home. When you file taxes quarterly, or annually as some businesses do, staying on top of receipts and keeping up with payments can be time-consuming—not only will it take you away from running your business, but it also takes time that could be used for growing your company.
Setting up online bill pay is a great way to stay on top of your small business finances. It’s quick, easy and automatic. When you set up online bill pay, any bills that are due for payment will be transferred directly from your checking account onto your credit card, meaning you won’t have to worry about remembering to make payments or scrambling around for cash.
Keeping track of your financials, especially as a small business owner, is not an easy task. If you are not a CPA or some other type of professional with years of experience, figuring out which accounting solution is right for you can be challenging. But what you need most is a system that allows you to keep on top of your finances but doesn’t consume all your time and resources.
For many business owners, half of their time will be spent on making money and half on managing it. Figure out which one you’re doing now by using what we call The 50% Rule. Simply write down everything you spend your time doing for at least an hour each week. Then look at that list and see how much of it is related to making money (for example, marketing) versus how much is related to managing money (for example, financial planning). You might find that your ratio is completely different than what you expected—and that’s okay! It just means you need to shift some things around so that they are in line with where you want them.
You may be surprised by how much taxes you have to pay on a small business income. The good news is that you get to deduct most of your expenses, which might make for some hefty tax savings. But it’s also important that you set aside 15% every year for taxes; otherwise, you could face an unpleasant surprise come April 15th.
Once you have your business budget in place, make sure you have a back-up plan for sudden financial emergencies. Setting aside some of your monthly income in an emergency fund can save you from having to take out loans or put extra stress on your credit cards. We recommend setting aside anywhere from three months to one year of expenses in an emergency fund—the higher end is recommended if your business operates as a sole proprietorship.
When it comes to bookkeeping, automation is key. Depending on how your accounting software is set up, you may be able to automate financial entries like payments and deposits by connecting them with bank accounts or other external sources. You’ll also want to create automatic workflows for tracking items like invoice status and billable hours, which will save you time and keep your business running smoothly. Spend time on activity that generates revenue instead of focusing on managing the revenue itself!
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