If you’re here, you’re probably a new business owner. Congratulations on taking the leap! Now I know firsthand just how overwhelming it can be to think about business finances and all the things you need to do.
Start off with these foundational principles and you’ll be well on your way to successfully managing your business finances.
Separate business and personal bank accounts…like NOW
When your business and personal expenses are commingled, it makes it difficult to figure out how well you’re doing on a monthly basis. On top of your regular bookkeeping, you have to tediously sort through your bank account to make sure you’re getting every single business transaction.
Do you really want to spend that extra time with your magnifying glass, or would you rather spend it in a more productive area of your business? You could easily miss tax-deductible expenses or even sales. This means that you could be under or overstating your profit.
Having one bank account makes for a stressful year-end. You’ll have to scramble to get everything together and make sure that nothing is missed before sending it off to your CPA.
Most banks don’t have fees if you meet certain minimums, so there’s really no reason not to have a separate account! This is a TOP PRIORITY.
Pay yourself
PEOPLE….Pay yourself.
I get it. We all have reasons we started a business. More freedom. Less desk time. Flexibility. Time with family. But. BUT. We’re also in this to make money (unless you are just doing it for fun then kudos to you).
There’s nothing wrong with wanting to make more money! That’s why we set revenue goals and celebrate when our profit percentage increases.
At the beginning of starting a business, it can be hard to pay yourself. Revenue is inconsistent; profit fluctuates even more. Some months, there’s no profit. That’s not what I’m talking about here.
If you’re consistently profiting, but you’re still not paying yourself, we need to talk.
In order to know how much to pay yourself, you have to know your profits. And to know your profits, you have to have up-to-date books. The easiest way to pay yourself when starting out is by setting a percentage of profits, instead of a set dollar amount because we all know profits can fluctuate.
You can do this monthly by check or a simple bank transfer. Just please don’t Venmo it to your spouse (you know how we feel about Venmo for business).
Of course, there is more than one strategy for paying yourself and as profits increase, we start thinking about what’s optimal for your business. When working together, we evaluate your business and your goals, determine what strategy is best for you, and we implement it. On a monthly basis, we confirm that strategy is still working, and make adjustments if we need to.
Check out these resources to get our recommended step-by-step process for how to pay yourself using percentages.
Stop Using Venmo
Are you triggered? Don’t worry, you’re not alone. And I promise it’s for your own good. Because Venmo is made for transactions between friends and family, NOT business transactions, there are no protections and all the risks for your business.
Stop using Venmo for your business.
“But what about Venmo for Business?!”
Ok sure, Venmo for Business is fine and acceptable. But there are better alternatives that give you great reporting and integrate well with your accounting software.
So what do I suggest you do instead? Below are two of my favorites.
Stripe – Fees are 2.9% + 30¢ per transaction. Great reporting options, subscriptions work well, and are very easy to use.
Square – Fees range between 2.6% + 10¢ per transaction (for a card swiped in person) to 3.5% + 15¢ per transaction (for a card that’s manually keyed in). Reporting is very in-depth, and inventory management works well. They have several points of sale options that are easy to use, so if you’re in retail, I’d consider looking at them first.
Reconcile your accounts
One mistake I see over and over again with a new client that has been DIYing their books is that reconciliations are not done.
Reconciliations are important. In order to ensure that all of your accounting data is accurate and that no expenses or income are left out of your accounting software, make sure to add reconciliations to your monthly bookkeeping to-do list.
Avoid tracking your bookkeeping on a spreadsheet forever
Hear me out – I am not against spreadsheets to track your finances. We LOVE a good spreadsheet around here and even sell a profit & loss/mileage/goal tracker spreadsheet (hello Money Mapper).
BUT I look at these spreadsheets as a stepping stone. A simple tracker when you’re not ready to hire a bookkeeper yet, but you want to stay organized. A tool to start with when your business is getting started.
And a tool to upgrade from when the time is right.
Xero plans start at $12 a month. A $144 investment per year is a small price to pay for the amount of time that will be saved.
Instead of typing every transaction manually into a spreadsheet, the bank feeds import income and expenses directly into Xero so they can be categorized with a couple of clicks of the button.
Reconciliations confirm that no income or expenses are missed.
Reports, visuals, and payroll are streamlined and easy.
Use Stripe/Square or any other payment processor? Create a couple of rules in Xero, and your payouts can be automatically categorized, including processing fees.
Just think of how much time that will save you! And more importantly, where you will spend that time instead.
And that’s it! We’ve just scratched the surface but you now have a good foundation to go off of. If you’re ready to take this off your plate or need some help while DIYing your books, let’s get a discovery call on the calendar! Schedule here.
The content in this blog post is provided for general informational purposes only and should not be considered professional tax or legal advice. The author is not a Certified Public Accountant, and no assurances can be made regarding the outcomes or consequences of tax returns, IRS actions, or any financial decisions based on this information. Readers are strongly advised to consult with a qualified tax professional or legal advisor for personalized guidance specific to their individual circumstances. The author expressly disclaims any liability for decisions made based on the information presented in this blog post.
