As I am now coming up on the second annual tax season for my business, I thought it would be a good time to share some of my financial planning tips for other entrepreneurs or small business owners. Financial planning has been a topic that I’ve prioritized for a number of years, but once I became a full time business owner, the responsibility for my finances transitioned from being a task that my employer took care of, to a task that I needed to take over! Tasks like paying taxes, putting money away for retirement, and of course, making sure my business is turning a profit! So today, I want to share some tips and topics that you will want to think about implementing in your own life for business and personal financial success.
Set Financial Goals for Your Business & Personal Savings
To get started on your financial planning journey as an entrepreneur, you first need to set financial goals. For me, I like to set a goal for my yearly income and revenue. On one hand, I set a number for how much income I want to generate and then another number for the amount of money I get to keep after expenses are paid. To me, although I really want to make sure that annual income is high, it’s more important to me that my revenue be high. What I mean by this is that I would rather hit $60,000 in income in a year and get to keep $40,000 of it because I had $20,000 in expenses, as opposed to making $75,000 a year but only keeping $35,000 after $40,000 in expenses. Remember, it takes money to make money, so when you set your financial goals, you need to be realistic in the amount of money you will be spending as well as the money you will bring in. Now, when it comes to your personal savings, luckily this is a little more straight forward because you can determine the amount of money you want to save on an annual basis or you can decide on a percentage of income that you will put away into savings.
Sign up for business checking, savings and credit card accounts
Another financial planning tip I have for you as an entrepreneur is to sign up for business checking, savings and credit card accounts so that you keep your personal money separate from your business money. This is such a time saver when it comes to tracking your income and expenses on a monthly basis. It also makes it easier for you to pay bills and taxes because you can set aside money into savings for big expenses and use a business credit card or check card to autopay your monthly reoccurring expenses.
Track your Income & Expenses on a monthly basis
I think it’s a best practice to make sure you keep on top of your income and expenses on a monthly basis! For me this means I calculate my total income from all my income streams, and then I go through my business accounts and statements and calculate my total expenses. I also like to go through my business expenses and distribute or categorize each expense on a quarterly basis. You can see more of my Quarterly Business Review Process in this YouTube video!
Set up weekly or monthly auto-deductions to your personal 401K, IRA or Savings Account
In order to establish a good savings pattern for your personal finances, I think it’s a good idea to set up regular auto deductions to your personal savings accounts. Now, I’m no financial advisor so the amount of money you want to save and the types of accounts you will put that money into will vary. I’d suggest speaking to a certified financial planner to make those sorts of decisions, but no matter what you decide, you should consider setting up those contributions as auto-deductions so you don’t need to think about it or have to rely on your own time and energy to get that important money to where it belongs!
Set aside money for quarterly estimated taxes or yearly taxes
It’s a plain fact that if your business is making money, you will need to pay taxes! So, to prevent any unfortunate money situations, make sure you are setting aside money to pay those taxes, either by calculating and making quarterly estimated tax payments OR by keeping track of your tax burden throughout the year and putting money aside to pay at tax time. Again, I’m not a professional financial planner or business financial expert, however, I find that paying my quarterly estimated taxes on time helps me to ensure I don’t owe money at the end of the year! This process will certainly vary from country to country, so check your own local tax laws or talk to your state to learn more.