So, you’re taking the plunge! You’re daring to do what so many people dream of — starting your own business. Congratulations! It can be scary and a little nerve-wracking, but if you’re organized and prepared, the early days of starting a new business are exciting and very satisfying. However, it’s important that you keep your eye on your budget so that your success extends for many years to come. Here are a few steps you can take to create an ideal financial foundation for your new business.
Separate Your Personal and Business Finances
This may be difficult to do at first, but it’s important right from the get-go to keep your business and personal finances separate. You don’t want to pay your business expenses with grocery money, and while it may not seem like a big deal, buying office supplies with personal money adds up in the long run. It’s likely a wise choice to open two different bank accounts to separate these funds.
Set Aside Money for Business Taxes
Don’t mess with the IRS! This is serious business. You have your business tax identification number, and any income that comes through that ID number will be reported to the IRS, which means you will be taxed on this income. When it comes to your personal income, you’re taxed once a year. When you have a business, that income will be taxed four times a year. Instead of panicking and organizing all of your taxes right before their deadlines, put aside money from each of your sales — 20% of gross revenue or 35% of net revenue — each month. This means that when your taxes are due, you can simply pay them without drama and hassle. Make sure not to pay after the deadline, or else you will incur those pesky late fees. If needed, consider hiring someone to take care of this part of your business for you. However, if you choose to take care of taxes yourself, here’s a pro tip: open a free online bank account and use it to allocate funds and expenses into the correct categories.
Round Up Your Expenses
It’s good to know your exact expense amounts down to the decimal, but when you budget, round the numbers up so you will have a little room and latitude in your budget. This extra “cushion cash” can come in handy down the road. There are actually some apps that will round this amount up for you. This strategy will not only give you a rainy-day fund for the future, but you’ll also get the hang of budgeting and seeing exactly how each business dollar is spent.
Why pay more when you can pay less? As a new business owner, you’ll definitely have to purchase equipment like office supplies, a computer, and maybe even a printer. This means that you’ll either need to learn to negotiate with vendors to convince them to lower their prices, or you might be able to find used equipment and supplies. Browse websites like Ebay and Craigslist, since you’ll often find top quality items that someone had barely used and just wants to unload. Don’t assume that stuff is bad or broken just because it’s been used!
You can also reevaluate your bank accounts and see where you are losing money with banking fees or interest. Bank of America banking fees, for example, might be a lot more than you expect. Switching to an online bank account or just assessing how you can be more careful with your banking habits will help you save money for your business.
Sometimes, you just need to accept that you can’t be a jack-of-all-trades. There will always be areas where it will save you lots of time, effort, and money if you were to just hire a professional. This could be for accounting, marketing, data entry, you name it. Rather than putting someone on the payroll, you may want to consider hiring freelancers and contractors, especially if you just need a bit of assistance and the tasks are only for a short period of time. There are plenty of websites that can help you hire freelancers to do the work that you just don’t want to do or aren’t equipped to tackle.
Again, congratulations on starting your own business! We hope these tips will give you a smooth transition into your new role as “business owner”.