By Daniel Rodriguez | Dr. Budgets
Many people probably find it overwhelming to bring some structure and planning to their personal spending. This is probably why only one in three Americans prepare a detailed household budget. This, in turn, is one of the reasons why people are still in debt. If you are a business owner, then this adds another layer of complexity, which is probably why so many small business owners are flying off the seat of their pants when it comes to their finances. When I work with small business owners at Dr. Budgets, there are four things I recommend they do when it comes to organizing their personal and business finances…
1) Separate Personal & Business. Keeping your personal and business finances separate is a critical first step. This starts with simply having a separate checking account for your business, and then using it exclusively for business. If you use a credit card for the business, then having a credit card dedicated exclusively for business expenses is a must (whether it is a business card or a personal card you only use for business). Also, even if you have a very simple business, you want to have both a personal AND business budget.
2) Track Your Spending. You want to track your business expenses using some sort of software. If you have a simple business without much activity, then you can probably get away with using a spreadsheet. As your business grows, consider using bookkeeping software such as QuickBooks. This is so important that clients of Dr. Budgets who are small business owners receive bookkeeping in QuickBooks as part of their coaching package. Also, track your personal expenses. If you have a record of those expenses available, your tax accountant may find that some of those expenses on the personal side can be written off on the business side.
3) Pay Yourself a Salary. Many people who own a small business don’t have a plan on how to pay themselves. As money comes into the business, that money usually is spent on both business and personal expenses. It is important to create some stability in your personal spending by paying yourself a consistent salary (as if you were working a job). Set a reasonable salary that will balance your personal budget, while ensuring that you don’t take too much money from the business. A fine balance has to be stuck here because if you pay yourself too much, your business runs out of money, but if you don’t pay yourself enough then you run out of money on the personal side. I spend a lot of time with my small business owner clients to come up with a salary figure that strikes that balance.
4) Save for Taxes. Many small business owners (especially new business owners) tend to forget to save for taxes. When you are an employee, it’s easy because taxes are taken out of your paycheck before you can spend the money. As a small business owner, you have to put some money away to prepare for the inevitable tax bill. If this habit is built at the very beginning, then it just becomes another “bill” that the business needs to pay every month (by transferring money to your business savings). Unfortunately, many small business owners don’t do this, and then when the inevitable tax bill arrives, they are shocked. Not saving enough money to pay your taxes is an easy way to get into debt as a small business owner, so you must plan for this by setting aside some of your business income every month.
Being a small business owner is a challenge even without factoring in the financial side of things. Doing the four items above can help mitigate some of the stress associated with running a small business. If you know a small business owner who prefers to have an expert look at their spending on the personal and business side, please have them contact us to schedule a consultation. These are only four tips for business owners. Do you have some other ones? If so, please let us know in the comments section below.
- Published in Organization Tips