Setting Up Your Finances as a Small Business Owner

Today we're talking about taking OWNERSHIP over your finances. I talked about this with Montana Valverde on The Glowbal Network Podcast. It doesn't have to feel icky or scary to take care of the finances in your business. When you're just starting out, I often find that people don't know WHERE to start. What the money means, how to manage it, how to take care of taxes, etc. If you're struggling at all with your finances in your biz, this post is for you. Let's dive in. 

Number 1 Mistake Small Biz Owners Make 

The biggest mistake I see people making is not taking their business seriously, and believing that your business can be successful. With that, comes separating your business and personal finances and setting up your LLC. Once you have that set up, you can easily do your bookkeeping and not have to sort through your personal account and try to remember if it's a biz or personal transaction. It makes things SO much easier as you get ready to do your taxes later on.

If you own a business and you haven't done this yet, no worries! Better late than never. But the sooner you take care of separating out your finances, the less stress and time it'll take you to fix later on. It might feel overwhelming to do, but in today's world you can set everything up online. You probably don't have to actually go in to the bank. So set up a block of time on your calendar and take care of you and your biz, you deserve it. 

The Difference between an LLC and Sole Proprietorship

Disclaimer, I'm not a lawyer. This is solely from an accounting/finance perspective. An LLC and Sole Proprietorship are actually taxed the same way. It goes on the Schedule C of your personal tax return. That being said, when you file to become an LLC it protects your personal assets from your business assets. Then once you get to a certain point in your business, you're already set up to file as an S Corp (short version, it can potentially save you $$$ on taxes).  

I definitely recommend starting out with an LLC, regardless of what kind of business you have. That being said, definitely schedule time to consult with your CPA or lawyer to make sure that your business is set up in a way that's going to be the best fit for you. The main difference with the LLC is the legal side of things, so if you're unsure, meet with a legal professional so you're personally protected in your business. 

Advice for Budgeting in your Business

My biggest tip here is if the word "budgeting" gives you the heebie-jeebies and you just don't want to even talk about it, swap it out for the word "projections". At its core, budgeting is really just projecting what your business is going to bring in and what's going to go out. So look at it as, "I'm going to project what my business is going to do." I've found that this simple shift changes your mindset from limiting yourself, to allowing yourself to spend money in certain areas (whether that's on a coach, branding, a professional photo shoot, etc).

As far as actually sitting down and looking at your numbers, I suggest you look at the past 12 months of your business for what your average income & expenses were (if you haven't been in business that long, you can look by quarter or a smaller amount of time). From those numbers, you can build out a projection of what your projected income will be, so you have a better idea what it will be going forward. The same goes for your expenses. If you have recurring subscriptions, or if you know you have an investment coming up, you can put all that in there for the months you want to do that. 

Long story short, you're taking the past 12 months to get an idea of what your future 12 months will look like. I like to look at it from a 12 month period so I have my overarching goals, and then I revisit my budget monthly. To do that, I actually schedule a meeting with myself (or with my "money") to see how things are going and to reevaluate. Scheduling that date with your money gives you ownership over the finances of your biz. 

The Difference Between Sales and Profit

Alright, get ready for me to get on my soapbox here for a minute. This is essential for you to understand if you're just setting up your business or if you've been an entrepreneur for a while. I always see people posting their numbers on social media as a marketing tactic. And here's the thing: I'm all for transparency with your numbers because there can be a stigma around talking about money. BUT. If you have no other insight into that number they share, you cannot look at what they say and compare yourself to that. 

If someone says they had a 20k month, that could JUST be what money went IN to their bank account, not including all the money that went OUT. Or let's say you follow someone who says they're a 6-figure business. That could be over 6 months, a year, or over a 5 year period or it could be solely profit. 

*Get's off soapbox* So what's the difference between Sales and profit? SALES is all of your sales coming IN. PROFIT is your SALES (or Revenue) minus EXPENSES. Basically everything left over after paying all the things (contractors, subscriptions, etc). And then I also strongly recommend setting some of that profit aside to pay for taxes (I talk more about that and how much to pay yourself HERE). 

Tips for Saving and Investing in Your Business

Going off of that last topic, let's say you've figured out your profit and you've set aside money for taxes. What do you do with that leftover money? I recommend having a business savings account AND a rainy day fund. You might consider those the same thing, but you could look at the rainy day fund as your savings for if your income completely stopped in your business for a couple months, it would be enough for you to cover all your expenses and NOT have your business shut down. A good resource here is Profit First. I don't necessarily agree with everything he says in the book, but I like the general idea and there's definitely some good points for biz owners.

 I hope this post was beneficial for you, whether you're brand new to business or you've been at it for a while. Having your finances set up correctly and having good systems and habits in place is so important for the success of your business (and for your personal life too, honestly). As always, if you have any questions or feedback you can reach out to our team via email or Instagram!