When starting a home-based business, there are many decisions to make and essential details to consider. In order to have a successful business, based at home or not, it must be profitable. Otherwise the IRS eventually labels it a “hobby business” and no longer allows such things as business deductions. And yet it is the financial side of running a business that prevents many from taking the steps towards becoming a business owner.
Here are a few guidelines to follow when organizing the finances of your business. They’ll help you be more aware of where you’re at financially and to be fiscally responsible. And if you’re like me, you’ll discover when your finances are in order, you can focus on building your business versus worrying about financial matters.
In fact, it will be cause for celebration as your business grows and you experience successes along the way.
- Separate your business checkbook from your personal one. There are a number of reasons why you should have a separate checking account for your business. There are stringent guidelines regarding allowable deductions related to a business. If you use a personal account to manage your business expenses, it will be more difficult to take the proper write-offs because you don’t have the appearance of running a legitimate business. Secondly, the cost of having a business checking account doesn’t have to be a high one. Shop around at your local banks and compare the many programs available to small businesses.
- Set financial goals. Many years ago I remember my husband (20+ years as a sales manager) asked me what my monthly sales goals were. My eyes glazed over as I had never set any real financial targets to work towards. Running a business implies a goal to be profitable. And if you don’t have a goal, how will you know what you’re working toward? Begin setting goals and when you reach them on a consistent basis, don’t be afraid to raise them.
- Review your progress on a quarterly basis. Organized people often don’t like surprises so this step comes easily to me. When you review your financial standings on a regular basis it allows you to celebrate reaching goals as well as knowing when to make some corrections. If your expenses are too high, wouldn’t you rather find out about it now rather than when you’re preparing your tax returns?
- Devote 30 minutes each week to your financially-related items. Scheduling this on your calendar each week makes this a priority as well as ensures you’ll devote time paying bills, reviewing your numbers, calling your accountant with any questions and balancing your statements. One of the best time-saving tips I can give you is to sign up for auto-pay for your household bills such as utility, mortgage and insurance premiums. You can choose what day of the month you want these items deducted from your checking account and you’ll still receive a paper bill or an electronic notice if you want.
- Organize your tax receipts throughout the year. Create a file labeled “Current Tax Year-Personal” and “Current Tax Year-Business”. Any time you receive a 1099, donation receipt or other item which you know you’ll need at tax time, place it in the appropriate file. Getting ready to do your returns doesn’t have to a dreadful experience and your accountant will love you for having these items already organized!
- Hire an accountant. It’s okay to hire outside help. Don’t think you have “too small of a business” to warrant hiring someone who can do the bookkeeping in half the time. I have a saying – “I’d rather stick needles in my eyes than manage the books.” If managing the financials of your business is painful, why not keep your focus on growing your business while someone else manages the numbers.
- Commit to keeping it simple. The more cumbersome your financial records are, the less apt you will be to maintain them. Having a simple system or software program such as QuickBooks Pro ® will allow you to easily manage your company financials and produce excellent reports which will only add to your ability to reach your financial goals..
