With personal and business financial priorities not always aligning, sometimes the task of managing both can feel like a juggling act for small-business owners.
Money. It’s one big reason small-business owners open their own company, and it’s one significant determining factor for whether you stay open or have to shutter your doors. Better grab that cash with both hands and make a stash, as Pink Floyd might say.
But seriously, how do you do that? What do you need to know to be successful at managing your monthly cash flow, the lifeblood of your company?
The first, most important rule to handling finances is to talk directly with a professional who can help you navigate the unique aspects of your business. There’s nothing like personalized advice. But there are also several general steps you can take to make your financial life easier, says Carri Shockley, president of Shockley Bookkeeping and Tax Services in Broken Arrow.
Step one? Find out what mistakes you’re making and avoid them. “The mistake that I see most is that business owners don’t know the tax laws and how to spend their money the best way possible to get the best deductions,” says Shockley. “They also tend to see a large amount of money in the business checking account and don’t realize how fast it can dwindle.”
In other words, managing your business funds well requires planning. And there’s nothing better for that than budgeting. “Budgeting gives you a good starting point. Whether you have unexpected charges and expenses come up or not, at least you can know approximately where your money is going,” says Shockley.
Once money comes in (yay!), where should you put it? While it’s easy to put the cash into your personal account, Shockley says that’s a mistake. It’s smarter to have separate accounts, one for personal income and one for your company.
“You do need to keep them separate,” she says. “Should they ever be audited or go through a lawsuit, keeping personal and business accounts separated will reduce the liability that the government or the person who is filing the lawsuit can go through your personal accounts.” To do this, open a business checking account and have a designated business credit card.
Beyond a checking account, Shockley recommends having a business-savings account where you can put profits. “There are a lot of people trying to access your business checking accounts,” she says. “By keeping your operating account not so full of cash, you can move money back and forth through savings to keep it from getting hit by bank fraud.”
Once you’re effectively managing day-to-day business finances, it’s time to take the next step — reducing your tax liability. After all, one of the major concerns for small businesses is the large percentage of income that state and federal governments want to tap you for. It’s discouraging to watch your hard-earned cash waving goodbye as you pay it in taxes. Thankfully, there are ways to make taxes less painful.
First of all, ask your accountant good questions: “How do I keep my hard-earned money in my bank accounts? What is not allowed to be written off on a tax return? Do I need to pay estimated taxes? How do I need to set up my business? Do I need to pay myself payroll?”
Beyond that, make investments. “Investments are a good opportunity to put money away for your future or your kids’ future,” Shockley says. “Plus, you keep the money for yourself; you can have a tax write-off and owe fewer taxes or none at all.” As a business owner, there are several ways you can invest. Talk with a financial adviser to learn the most up-to-date tips and investment opportunities, says Shockley, because accountants don’t always have the expertise to offer investment advice the way a financial adviser is trained to do.
Shockley also suggests considering state-specific donations. “A good deduction for the state of Oklahoma is the Oklahoma Scholarship Opportunity Fund,” she says. “This particular donation not only gives you a write-off of the amount you paid in, but you also can obtain a tax credit depending on what you donate to them. You can check out more information on their website [osfkids.org].”
Also, don’t forget about spending cash on legitimate business needs. “Buy a vehicle or a piece of equipment before the end of the year is finished,” says Shockley. “You can write off the majority of the purchase or the full amount, depending on what type of vehicle or equipment you purchase.” Your accountant can help you figure this out.
And what if you don’t have an accountant? That’s not unusual for startups and freelancers, but turning to an expert helps you make sound financial decisions. And handing off this time-consuming task to someone else frees you up to do more of what you love. So, how do you choose the right accountant?
“The accountant/bookkeeper should be trustworthy, dependable, and accurate,” says Shockley. She also suggests looking for someone who admits what they don’t know. “I know this sounds strange,” she says, “but if someone always claims to know everything or never admits if they have made a mistake, they aren’t very teachable or easy to work with.
“Also, they have to be able to adjust to what the business owner is wanting. This is the business owner’s money, and we, as accountants/bookkeepers, have to realize that the business owner has the final say.”
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