Re-Organizing Your Small Business Finances? Get It Right The First Time!

Every business owner has one underlying reason which took them out of their day job and into the role of CEO. Some of them were passionate about solving an issue within their industry, and wanted to make that problem a thing of the past the only way that was possible. Others simply hated being subordinate to a boss, and wanted the unique sense of freedom that comes with becoming an entrepreneur. Whatever the reason you started your business, I’m sure it wasn’t because you wanted to spend your days pouring over financial figures and trying to make sense of them! Giving your finances a good spring clean certainly isn’t the most thrilling part of being a business owner, but you can’t put it off forever! If your small business’s finances are causing you nothing but stress, here are some tips for re-organizing your small business finances.

Get the Right Help Early On

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A lot of business owners put off talking to their tax advisors or accountants until the deadline for their returns are just around the corner. While you may get through the tax season relatively unscathed, and deduct everything you can, this certainly isn’t the best way to go about it. Immediately after filing your returns and getting into the next tax year, you should be arranging to meet with your CPA to discuss the road ahead of you. This will give you more time to talk about your financials, and figure out a better long-term strategy, rather than simply scraping in by the skin of your teeth. If you have enough capital to throw around, then you may want to look into some top fee only financial advisors to formulate an even better strategy. It’s easy to put off reaching out to the pros, but the sooner you start a dialogue and get all the financial advice you can, the healthier your small business finances will be in the long run.

Re-Evaluate Your Entity

There are a lot of business owners that start their ventures off as partnerships or proprietorships, and transition to a different business entity as they grow and expand. If your business isn’t incorporated, for example, you may consider incorporating later on, or forming an LLC. This has the potential to shelter you from a little financial risk, and save you some money on taxes. Occasionally, entities can be formed with a single income target in mind. If this is the case with you, you may want to re-think the entity you’re operating as for a different income level. Fail to adjust your entity based on your revenue, and it could wind up costing you a copious amount of money. There are a range of legal entities you can establish your business as, each with their various pros and cons. Talk to your main financial advisor about the options available to you, and they’ll be able to help you in determining the best entity for your specific situation, and the best possible time for you to make the change.

Separate Your Personal and Business Finances

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When you first started your venture, possibly as a sole trader, it was probably easy enough for you to manage both your personal and business finances as the same kind of system. However, if you stick with this model, you’ll eventually outgrow it, and need to separate your business and personal finances from one another. This is pretty much mandatory if you’re running a corporation or LLC. Still, it’s a good practice even if you’re still operating as a sole trader. In order to do this, you’ll need to open a business credit card. Generally, I tell people to avoid opening new lines of credit at all costs. However, when you’re taking steps to separate your personal and professional finances, this is a smart move. When you move all your business expenses onto a business credit card, you’ll have an instant audit trail to fall back on when it’s time to deal with your taxes again. Remember to save all of your merchant receipts as well! The other thing you should do is open a business checking or savings account. When you’re running an LLC or corporation, your business must have its own checking account. If you’re a sole proprietor, on the other hand, you’ll be able to keep things slightly simpler by using your own personal checking account. Still, you should think about opening a dedicated money market account or savings account. With these, you can transfer about a quarter of each payment and check you receive, and designate it as your own personal tax withholdings. If you adopt this kind of strategy, paying your own business and self-employment taxes will become far less painful.

Tech to the Rescue!

You’ll have no trouble finding a cloud-based tool which can help you streamline your small business’s operations and finances. Obviously, once you’ve been in the usual swing of your business for some time, it can feel easy to stick with what you know. However, once you incorporate enough helpful tech into your financial processes, you’ll find them all so much easier to handle. That one little period of shakiness will be a pretty reasonable price for the massive amount of time you’ll save! For example, you can use software like QuickBooks for your invoicing, or Expensify for managing your expense reports. These are just the tip of the iceberg in a whole range of apps and tools you can use to make your finances easier to manage. If you’re not sure about the kind of tool you should be adopting first, think about what the hardest parts of managing your finances are. Does your invoicing process take too long? Do you always forget to track your mileage during meetings with clients and partners? Did you need to dig through a mountain of old receipts when dealing with your last tax returns? When you’re eyeing tech solutions, always start with the ones that will help with your biggest headaches. These will give greater opportunity to improve your execution, and promise more for your money in the long run.