Whether you’re a wiz at managing your finances or you look at it equal to getting a shot in the you-know-where, when you work for yourself, how you handle your finances can make or break your business. Here are seven tips to help you get on top of your company’s financial situation.
1. Open a business checking account
You absolutely should keep your business finances separate from your personal accounts. If you formed a corporation or LLC, you’re legally required to keep everything separate. But even if you’re a sole proprietor, it’s good practice.
Once you have obtained your Tax ID number for your business, open a business checking account. You’ll appear more professional when you write checks from your business versus your personal account, and you will be able to accept payments in your business name (and you want to accept payments, don’t you?). In addition, having a separate business account will streamline your bookkeeping, making it easier to understand your business’ cash flow on a monthly basis. And, come tax time, all your business expenses and income will be automatically organized.
2. Start withholding taxes with every check or payment
When you work in an office, the employer automatically withholds taxes and social security with every paycheck. This doesn’t happen when you’re self employed, and many new business owners feel the pain at tax time, when they need to dig into their savings to pay their federal and state income taxes.
Savvy entrepreneurs make it a habit to withhold a percentage of each check or customer payment they receive. To do this, you could open a dedicated savings or money account where you transfer 25% (or another percentage) for each check or payment received as your own personal tax withholdings. Come tax time, you won’t have to scramble to pay.
3. Keep up with your quarterly tax payments
When you run your own business, tax time isn’t just once a year. You need to make estimated tax payments throughout the year. They are divided into four payment periods throughout the year: April 15, June 15, September 15, and January 15.
For self-employed individuals and disregarded entities (i.e. single-member LLCs, partnerships, and S Corp shareholders), the IRS recommends using Form 1040-ES to calculate your individual estimated tax payments.
4. Meet with a tax advisor/accountant
Maybe your business’s finances are simple enough that you don’t need professional help with bookkeeping. That’s fine, but it’s still smart to meet with a tax advisor or accountant at least once to make sure you’re doing all you can to meet your legal obligations and minimize your tax payments. A tax professional might advise you to form a different business structure or suggest new tax deductions. This is actually a great time of year to schedule an appointment, since you avoid the tax-time rush, and still have a few months left in 2013 to act on their recommendations.
5. Take charge of your recordkeeping
When you run your own business, you need accurate, comprehensive records for all financial transactions (income and expenses).
If you haven’t been keeping track of your business expenses, it’s time to get caught up now. If you find yourself struggling with this administrative task, look for a new solution, whether it’s outsourcing the task to someone else, investing in a technology solution (like a receipt scanner or new app), or dedicating 30 minutes each week to expense tracking. Trust me: you’ll be grateful come tax time.
6. Keep up with your billing
For most businesses, if you don’t send out invoices or bills, you don’t get paid. Period.
One of the keys to a healthy cash flow is making sure that you invoice clients and customers on a timely basis. No matter how busy you get with project deadlines or other deliverables, you need to make invoicing/billing a priority. Set up a system to automatically bill recurring customers and mark it on your calendar if you need to send them manually.
7. Don’t forget your retirement
I know that for most solo business owners, money feels tight and you’re thinking more of your day-to-day expenses, rather than saving for the future.
However, you’re now solely responsible for your retirement. As a small business owner, you have a range of possible retirement plan choices, from SEP to SIMPLE IRA plans (you can discuss your options with a tax/financial advisor). While you may be hesitant to tie up money you might need for everyday expenses, the key is to get started on retirement savings, even if that means a small, regular investment of $25 per month.
Editor’s note: This was originally written by Nellie Akalp on The Mogul Mom.