Running a business requires that you wear many hats. If you’re busy trying to make money, meet with clients, keep up with your marketing, and stay up to date with the latest technology, it’s not always easy to think about the financial part of your business. Here are six tips to help you out:
1. Income tax payments:
- When you’re self employed or have your own business, you’re responsible to report and pay income tax yourself. It takes discipline to be able to put some money aside and to come up with all the payments required when they’re due.
Tip: Estimate your annual payments and put a percentage of your income aside every time you get paid for income tax purpose so that you’re not scrambling at the end of the year or tax period. Put it in a separate bank account which is not accessible with a bank card so that you don’t get tempted to use it.
- One of the great benefits of being self employed is all those deductions. Make sure that you’re aware of what you can and can’t deduct by doing your research first or by asking your accountant. If you’re using a home office, there are several additional deductions that you can use such as portion of your rent or mortgage interest, utilities, repairs and maintenance.
Tip: Use Evernote to keep all your documents and receipts organized. You can even use the Evernote app on your mobile phone to scan receipts on the go so that you don’t forget or misplace them.
3. Borrowing money:
- If you’re a business owner and are looking to get a personal loan or mortgage, banks will usually look at your personal income (typically they look at the last 2-3 year worth of income) and not your business income. Depending on your business structure, this might make it harder to get financing especially if you keep most of your revenue under your company and only give yourself small pay checks to save on income tax.
Tip: If you think that you might need future financing, try to weigh the benefits of paying yourself a low income versus the cost of financing. Also, make sure to ask your financial institution about special plans for self employed people. Check out my friend Leah Coss, she has some good advice on how to get a mortgage when self employed.
4. Protect your personal assets:
- You work hard for your money but you never know what might happen in the future. The easiest way to protect your personal finances from business creditors or from unhappy customers is to create your company as a separate legal entity (such as a corporation or limited liability company).
Tip: Make sure you keep business money and your personal money separate. Open separate bank accounts even if it might mean extra banking fees.
5. Credit cards:
- Just like bank accounts, it’s probably wise to separate your personal and business credit cards. Don’t charge more than you’re able to pay back in a month.
Tip: Not all credit cards are created equal! Shop around for the best credit card for your business needs. Although lenders may provide you with a certain limit, if you don’t need or use it give them a call to reduce the limit to the minimum amount you think you’ll need.
- As a business, knowing where your money goes is critical. If you’ve been in business for a little while, you can forecast expenses and plan accordingly. Budgeting will also help you figure out how much income you’ll need to cover your costs and how much you’ll need to make a profit. Determine what you actually need to run your business and separate it from the “wants” so that you can set your priorities.
Tip: Look at all your expenses and see how each one affects the value of your business. Does it make any difference to the bottom line? Are there better, faster, cheaper ways of doing things? Make sure you keep track of the return on your investments and reduce the expenses that don’t pay off.
Since every business and person has different circumstances and needs, use these quick tips as guidance but you should keep in mind that it doesn’t replace the assistance of a professional and should get professional advice if you have any questions or concerns about your finances or business structure.