How to Manage Your Finances When You’re Running the Show (2024)

Ask any business owner to name their least favorite tasks, and bookkeeping, money management, and paying taxes will all make the list. While these chores may be tedious, they’re absolutely critical.

Unlike big companies, the finances of the solo business are often closely intertwined with the personal finances of the business owner. That’s why solo businesses need to pay extra close attention to managing their finances.

Here are a few simple steps to manage your business finances:

1. Use dedicated business accounts

If you haven’t done so already, take the steps to keep your personal finances and expenses separate from those of your business. This is mandatory if your business is structured as an LLC or Corporation, but it’s good practice for sole proprietors as well.

• Open a business credit card: While I normally don’t recommend opening any new credit lines, in this case, it’s a smart idea. By putting all your business expenses on the business card, you’ve got an instant audit trail of your year’s expenses when tax time rolls around.
• Open a business checking/savings account: If you’re operating as an LLC or Corp, your business needs to have its own checking account. If you’re a sole proprietor, you’re able to use your own personal checking account, but having a separate business account will help you keep track of your profits.

2. Track your expenses

While a dedicated credit card can go a long way to keeping track of your expenses, it shouldn’t be your only method. Keeping merchant receipts for all purchases will help you substantiate your records in the event you’re audited. Use whatever process works best for you. If your business is small enough, you might choose to store paper receipts in a set of file folders. Or use an online accounting software like QuickBooks Online to help manage your finances. Whatever method you choose, be sure to dedicate some time each month to get your records up to date, so you’re not left scrambling come tax time.

3. Plan for major expenses

To keep your business going and growing, you need to invest money in it. Maybe you need to upgrade your computer and software for your graphic design business; maybe you need to buy a new kiln for your pottery business. In short, running your own business takes money – and that can be painful when the money seems to come out of your ‘personal wallet.’ For this reason, try to plan major expenses ahead of time and start putting away for those specific expenses. This will make budgeting a whole lot smoother and allows you to strategize each year’s tax deductions.

4. Set aside money for paying taxes

When you make the move from being a paid employee to self-employment, your first tax return can be a major shock. Consider opening a dedicated savings account or money market account where you can transfer approximately 25% from each check or payment received as your own form of tax withholding. This strategy will make it far less painful when it’s time to pay your self-employment and small business taxes.

5. Pay your estimated taxes

When you have your own business, tax time isn’t just once a year. In addition to setting aside money for taxes, you’ll also have to make estimated tax payments throughout the year (it’s not required for everyone, but if you expect to owe $1,000 or more in taxes when you file your income tax return, you most likely will need to make estimated tax payments to the federal and maybe state government). Estimated tax payments 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.

Conclusion.

As we’re moving into the home stretch of this year, it’s a great time to get your business’ financial house in order. Yes, you’re busy and feel the urgency to support your customers and bring in more sales. But as a business owner, you need to take some time to focus on the administrative tasks – it won’t be that bad, and your business is worth it!

What tools and strategies help you manage your finances? Drop us a note; we’d love to hear from you!