If you’re going to handle your business finances by yourself, you’ll be responsible for everything. You’ll be responsible for setting up a business name, getting a tax identification number and the costs of registering a business and then running it legally. You’ll also have to make sure that you get payroll done by a licensed service, determine what expenses are business related and figure out how much money you need every month to cover those expenses. It’s a lot of responsibility, but it can also be quite rewarding as well. Here are some tips on how to manage your own business finances.
The first thing in managing your business finances effectively is registering your business with the Small Business Administration. To do this, you’ll have to pick what kind of business would work best for you. These are usually the most popular types of small businesses: sole proprietorship:
Then, there’s sole proprietorship. Your spouse and children are still responsible for the business finances. You still have the ownership of the business and can direct what it does and doesn’t do. In addition to paying taxes, though, you’ll have to pay an allotment to the SBA (small business accounting). The SBA offers many services to help small businesses with their finances such as online filing of state and federal tax obligations. They also offer resources and help in tax planning for owners who don’t know where to start.
Another option for managing business finances is a partnership. With a partnership, half of the partnership is responsible for the business finances, while the other half has a separate bank account and pays the taxes. When you set this up, you and the partner each contribute a portion of the business profits into the other person’s account. You both have to pay the appropriate taxes on your shares. Of course, the profit you make from the business increases your share of the profits and you pay that money to the other person.
There are also ways to keep personal finances separate from business finances. You may have an accountant that does your taxes for you or a bookkeeper that does monthly financial reports. If you don’t have someone to do these things for you, setting up a separate bank account and paying your taxes by yourself can be time-consuming. The IRS provides a variety of tools that help you stay on top of your filings, but it can be tedious. A better choice for keeping your personal and business finances separate is to get a bookkeeper or accountant to do it for you.
Whether you’re managing your business finances independently or as part of a larger company, there are several steps you can take to make sure you are meeting your obligations every month. Start with expenses. Write down every single charge, even the smallest, and add them all up. Figure out your minimum expenses and compare them to your income. You will likely find that you are short on cash if your expenses are greater than your income.
Your business finances come from many different areas, including the value of your products, your overhead and costs, your labor force, the number of sales you have, your turnover rate, your sales revenue and interest rates on loans and credit cards. As a general rule, the higher your costs, the lower your income. Be careful not to get too far into the red because that could hurt your bottom line. Keep a look at your income statement (which shows your net income) and your balance sheet (which show your net income minus your expenses). Use the data to see what areas of your income and expenses need improvements. Minor adjustments to your business finances can help you meet your goals and reduce your short term finance issues.
Another way to keep your finances separated is to use different accounting software. Some software has additional features that allow you to separate finances by category. Other software has built in checklists to track expenses and transactions, so you can keep track of all of your expenses. Use these features to refine your budgeting and keep on track of your profit margins.