As a single-person business owner, it's important to get a handle on your finances to avoid spending time and money backtracking to fix mistakes. Follow these tips to help simplify money management and start your business on the right financial footing:
Separate Personal and Business Finance
You may be in business on your own, but that doesn't mean you should keep all your money in one account. If your business is incorporated or a limited liability company, you'll need to set up a separate business account because your business is its own entity. If not, you should still consider keeping your personal and business bank accounts separate. This helps minimize personal liability and helps simplify bill and tax payments because you'll be able to quickly find the information you or your accountant needs.
Set Up an Accounts Receivable and Payable System ASAP
Set up a schedule for accounts receivable and payable (incoming and outgoing money) as soon as you launch your business. When only one person bears the responsibility for managing finances and producing goods or services, an efficient bookkeeping system can save precious time better spent on sales, marketing or other business tasks. Whether you choose a simple spreadsheet or an online accounting system, be sure to input all receipts, credit card expenses and invoices from suppliers to your accounts payable. Set up a payment schedule or bill-pay day, either once a week or biweekly, to stay up to date on paying your expenses.
For accounts receivable, set up standard terms for your clients and make a point of billing promptly. Ensure your invoices clearly state what work was completed and when, and specify when payment is due. Follow up on overdue accounts immediately.
Build an Emergency Fund
In a single-person business, income depends on you alone. If you can't work, or if work doesn't come in, you may have no other sources of income. But outgoing expenses like rent continue. Business Insider recommends setting aside an emergency fund of at least six months of living expenses.
Stay on Top of Taxes
In addition to monitoring incoming and outgoing cash and building savings, sole business owners must take responsibility for collecting, organizing and documenting taxes their business must collect and/or pay. Have a filing system in place to help you track relevant tax documents, file quarterly taxes, accurately report business income and claim the correct deductions and expenses.
Get in the habit of estimating business taxes, notes the Small Business Administration, then deposit a portion of each customer payment into a separate bank account earmarked for taxes. This helps prevent business owners from scrambling to find money for quarterly tax payments days before they're due.
Setting up routines and systems early on can help the single-person business owner manage finances smoothly. Separate personal and business bank accounts and monitor cash flow, savings and tax payments to reduce the chances of complicated and costly financial problems. When in doubt, check with a knowledgeable tax professional about your options.
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