When starting or running your own business you need to keep your personal expenses separate from your business expenses. You really need to consider monitoring your expenses early on so you don’t waste time later trying to fix things. This will also save you money in the long run.
At the beginning it can be very hard to keep things separate because, let’s face it, you’re starting from scratch and everything comes from one bucket. It’s important to start early and train yourself on how this all works. That means that the minute you create your business you get yourself an EIN number. That way you don’t have to use your Social Security number when you go to open a bank account for your business. You will also be able to use your EIN for other things surrounding your business like applications and taxes.
Once you have that EIN number, get yourself a free checking and savings account in the business name. Why business checking and savings? The business checking is a must but the savings is so that you can utilize that for putting away money for taxes and/or healthcare. Remember when you are self-employed you have to pay your own taxes and you want to do this on a quarterly basis. While percentage may vary, a good rule of thumb is to put away 15% of everything you make. But if you’re like me, then you probably do 20% just in case. Of course it all depends on which tax bracket you fall into but generally speaking 15% to 20% works. Learn more about estimated taxes.
Once you have your free checking and savings account set up, make sure that any money you make for the business goes directly into your business checking account first so you can pay for expenses. At least you have the paper trail all in one place.
When it comes to credit cards, select one that has no fees, a decent APR percentage, and rewards. If you’re going to be spending money you might as well be making something back on it, right? Personally, I like to pay for everything with my credit card so I only have one bill at the end of month to pay off. This works for me because I’ve trained myself not to abuse this privilege. It’s also nice using a credit card (if you have the self-discipline) as you have records for everything. If a dispute comes up, you can call the credit card company. Plus, I like getting points for spending. If i’m going to spend it and have a chance to make something back then you better believe I’ll do it!
Now, you may not want to go out and get a business credit card at the beginning for a number of reasons and that’s OK. A lot of entrepreneurs use their personal credit card to get started. You just want to make sure that you only use it for business purchases. So if you’re going to use a personal credit card make sure that you designate one card strictly for business purchases.
I actually designated 2 main cards (I wanted points which was only on one, ha!), but didn’t really understand it until the end of my first year in business when it came to tax time.
While I keep receipts and note everything, at the end of the day it still doesn’t look good having personal and business purchases on one card. If I were to get audited it would be a nightmare because they would see the personal expenses from the bank statements and question it. It wouldn’t matter if I had the receipts (I’m sure it would help at some point) because they would look at the statements.
It’s very important to start off with the right accounting program so you can keep track of everything. I researched a few accounting programs and I tried a free one in the early days. It worked but not as good as it should have. Then after being in business for a year, I realized that there is a reason why the industry standard is QuickBooks.
I’ve always heard about QuickBooks and I’ve worked with several customers who use QuickBooks, but I never really looked at it as an option for me — until my second year of business kicked in.
[bctt tweet=”Since converting over to QuickBooks I can see clearly now why it’s the industry standard” username=”Ed_Troxell”]
Since converting over to QuickBooks I can see clearly now why it’s the industry standard and the only one to go with. Yes, there is a slight learning curve at the beginning because it’s different but once you get past that it makes a world of difference. You can hook up your bank account as well as, here is my favorite part, your credit card so that every transaction comes in and you just tell it where to go.
Here’s the best part, they have the amazing phone support I have come across from any company right up next to Apple. I literally have QuickBooks saved on my favorites List on my iPhone because I call them for everything. If I don’t understand something I call them and they stick with me until I figure it out. They even do screen sharing. It’s amazing!
Not only do they have fantastic support and you have an accounting program that will take care of everything for you, it also runs two very important reports that anyone in business should be paying attention to. One might surprise you.
The two reports that you should be looking at when doing business is your profit and loss statement (also known as a P&L) and your balance sheet. These are two reports you want to be looking at side by side. This will allow you to see if your business is worth continuing or if it’s time for you to move on. Now I’m not an accountant but I’ve talked to a few to get my accounting game on point and these are the two most important reports you should be looking at.