If you are relatively new to entrepreneurship, there is a good chance you’re not quite sure how to manage business finances. Most of us are bootstrapping right? I don’t know about you, but I am not an accountant nor do I have an degree in business management or finance. Yet, I have managed to figure it all out after a lot of research!
In the end managing money in your business doesn’t need to be a mystery. The following tips will help you stay clear on your money goals and remain organized come tax time.
Get Clear On Business Expenses
Don’t let your business expenses run away with you! It can be easy to invest in new products and services that are shiny, promise results, etc. Bottom line, you want to make sure your business profits. Especially when you first start out, be conservative with spending. Keep a list of all expenses and when you pay them. If you find areas you are spending and not getting return on investment make adjustments!
If you aren’t a fan of creating an expense plan on paper, you can try a budgeting app, put reminders in your calendar, or use a electronic organizational tool like Trello. If you choose to track in a calendar or Trello, don’t forget to add up your total operating expenses as it may not be readily visible if you don’t keep the expense list all in the same location.
Have A Plan To Make Profits
Making money with your business is pretty much the main goal. Planning for profit is necessary for many reasons. Here are a few of the most important reasons a profit plan is so necessary:
- Determining if your business is financially sound
- Understanding where your efforts need to be focused to produce the desired outcome
- Creating a road map for you to follow and remain accountable
- Developing a mindset that attracts abundance and exudes confidence
- Helps you course correct if you get off track
If the idea of a profit plan sounds scary to you, click here to grab a basic profit plan worksheet to try out. The profit plan worksheet is a one page plan that will help you identify how to turn profits on a specific offer or product/service. I promise you will get the hang of it and be thankful you took the time to create clarity around your profit goals.
Have A Separate Bank Account
This tip saves a lot of headaches when tax time arrives. Mixing business funds and personal funds is frowned upon. In the event you find yourself being audited, having a separate bank account makes it easier to show a financial picture of your business without all your personal expenses getting in the way.
It may be hard to prove business vs. personal expenses when you mix two types of spending in one account. You can easily transfer money to your personal account by “paying yourself” from your business account. Using this strategy also clarifies how much money you have withdrawn from your business to pay yourself over time.
Managing money for your business in a separate account is usually pretty affordable, and there are a wide range of options for businesses. Check out available services at your favorite bank and don’t make the mistake of mingling your funds.
Keep Organized Records
This goes without saying, but it’s risky to claim expenses that you don’t track on your tax returns. It is incredibly important to keep accurate and detailed records to prove all your business expenses and deductions.
Instead of stashing paper receipts everywhere and risk lost or damaged receipts, I decided to use an electronic system for keeping these records. Currently, I use Wave Accounting. It is a free service that allows you to keep great business records. Simply snap a photo of your receipt or expense and Wave will go to work for you.
Recap…
Do the following four things and you’ll be wisely managing money in your business:
- Get Clear On Business Expenses
- Have A Plan To Profit
- Get A Separate Bank Account
- Keep Organized Records
Managing money well in your business gives you the best chance of reaching success!
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