Whether you are a brand-new business owner or you’ve been in business for a while, getting a firm handle on your business finances is the key to successfully building wealth through your establishment.
As business owners, it’s easy to get busy and caught up in the day-to-day running of your empire. But don’t let your finances fall to the side. Below are 9 tips you can leverage to help you track and manage your money better as a small business owner.
1. Open a business bank account
To accurately track your business finances and avoid any issues ( e.g. SARS issues, financial tracking, and forecasting inaccuracies) you need to completely separate your personal finances from your business finances ASAP. If you need to take out funds from your business for personal use, plan to pay yourself a salary (e.g. weekly, bi-weekly, monthly) so the withdrawals can be tracked properly.
2. Review your business structure
Most business owners start out as sole proprietors. But as your business grows and becomes profitable, you should consider transitioning your business formation into a Company/Small Business Corporation. This allows for full separation between your business finances and personal assets. These types of business structures can provide you with a certain level of protection for your personal assets. They can also have certain tax advantages.
3. Get organized
If you want to build wealth with your business, you need to be organized. This means creating systems to track your business finances. Specifically, you should track transactions, financial documents, accounts and more. There are several business finance apps that you can leverage to start getting your finances organized. Being (and staying!) organized will save you a ton of time.
4. Get an accountant
An accountant can provide you with certain insights when it comes to your business finances. He or she can also help with your tax filings, which can be a complex undertaking.
5. Create a business emergency account
A business emergency account is to your business what your personal emergency account is to your personal life. It can help provide you with a backup or buffer in the event of unplanned business circumstances. For instance, covering payroll during a slow season, replacing a damaged sales order, or making unplanned but required purchases.
6. Create an account to save for taxes
If you are making money in your business, then you will most likely have taxes to pay. Instead of letting your tax bill surprise you at the end of the year, start planning ahead. Create a savings account specifically for your tax savings where you put away a certain amount (30%) toward your end-of-year tax bill.
7. Create a business budget
Your business budget allows you to manage your business finances properly and stay on top of your expenses. It’s essential for making financial forecasts for your business and becoming profitable. A budget helps you lay out your income and expenses (budgeted and actual) and helps you get a clear picture of how your business is doing financially.
8. Pay yourself a salary from your business the right way
Before you pay yourself a salary, make sure your business will remain afloat. This means making sure that your operating expenses are paid first (including your tax estimates).
After you have paid your operating expenses, you can take what you have left over from your business earnings in that given month and break things out into percentages. Consider the following:
Emergency fund: 10%. Ideally, you want to have at least 6 months of business expenses available in this account to help weather a business decline
Profits: 10%. You should have plans to make distributions to yourself (and employees) as a bonus every year.
Estimated taxes: 30%. This way you are not overwhelmed with figuring out how to come up with funds to pay a large tax bill.
Reinvestment: 20%. Put this amount back into your business to put toward operating expenses, new projects, marketing, branding, and other business needs to keep your business growing.
Your salary: 30%. This percentage is just a guideline. Be sure to take into consideration how well your business is doing to determine when and how much to take as a salary.
9. Get insurance
Having business insurance is critical. It’s a good idea to sit with an insurance broker to discuss your business type and get recommendations on the best type of insurance you should have. No one wants to have a circumstance occur that will require insurance, but things happen and it’s better to be protected than sorry.
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Your business in itself is an investment in your future and the potential payout can be massive. So, learn as much as you can, test, pivot and do what’s necessary to grow knowing that this is all a sacrifice now for a bigger payoff later.
Here’s to building a wildly successful business!