biz ladiesLife & Business

biz ladies 09: organizing your biz income + expenses

by Grace Bonney

as a small business owner, it can be tough to organize expenses and income when you barely have enough time to create the things you’re selling. but today we’re in luck because siobhan lowe of the lowe bureau in brooklyn, ny is sharing some great business tips for all of us who struggle to get our business finances in order. i know i need to do a better job of following her second step (keeping your personal and business finances separate) so i’m thankful that she decided to share her expertise today. [if you’re in the brooklyn area and need help with your finances, siobahn’s company is happy to help- just click here for information on the services they offer]

CLICK HERE to read siobhan’s full article after the jump!

Organizing Your Business Income and Expenses

The small businesses owners I work with know that they have to at some point report their income to the IRS. These business owners are smart and proactive but the day-to-day running of their business, creation of their product or performing of their service can often leave the financial organization in the background. And that is understandable – without the success of the business, there would be no finances to organize! But at a certain point, the chaos can start to be a counter-productive force in the business. Aside from added stress, I find that without a solid organizational plan many small business owners just feel that they are constantly behind or running on empty. Their organizational methods sometimes consist of notes jotted in calendars about money received, piles of invoices whose paid status is known only in the owner’s head, boxes of receipts and bank statements that they know they are supposed to be keeping but aren’t exactly sure what to do with. There is money in the bank account, then it gets spent, then some more gets put in but these business owners feel like they don’t have a good grasp on the real financial situation that their business is in.

I’d like to offer a few tips on keeping your business financially organized. With good structure you will feel that you are in control of your business, and not vice versa. Some of the record-keeping can be tedious. However, if you set aside a set time each day or week to take care of it you will stroll into your accountant’s office with a neatly organized package that you didn’t stay up all night preparing, rather than with boxes and folders stuffed with documentation and sweating (or crying) while your CPA looks at you pityingly.

These tips can be implemented at any time! No matter how long you have had your business, it is never to late to get organized and put a system into place.

Keep your business and personal finances SEPARATE. This is huge, and though it may seem obvious, I run into so many new business owners who don’t follow, or don’t know why they should follow, this basic rule. I think it can be especially confusing if you are a Sole Proprietor – a single individual who works selling a product or service under her own name – for instance, a freelance graphic designer whose clients write checks to Jane Smith (as opposed to Smith Graphic Design Inc.). It seems logical to Jane to deposit these checks into her only bank account, the same one out of which she buys groceries and deposits checks from her Grandmother on her birthday. At the end of the year, Jane will have to rely on her notes and receipts to sort out what expenses and deposits out of her checking account are business expenses or income, and which are not. This is where her big box of receipts comes in…but there is an easier way! Even if you are a Sole Proprietor, you can open a business checking account under your own name and, if you like, get a business credit card. Then, all you have to do is make ALL business related purchases with your business account, deposit all business income into your business account, and make ALL personal purchases with your personal account. Sounds simple enough, right? The beauty of this system is that at the end of the year in the addition to your collection of receipts, you will have an official record (in the form of your bank and credit card statements) of EXACTLY what money came in to and went out of your business. And that is the core information you need to file your taxes. This is very related to the next tip….

Always think of yourself as a business. Of course, many small business owners are already incorporated, or have partners or employees, so they are already thinking in this way. But when you are first starting out, or if you are a Sole Proprietor, or even if you have another job besides your business it will help you to organize your finances if you remember from the start that you own a BUSINESS. There is Jane Smith the individual and Jane Smith the business. Jane Smith the business earns money and then can pay Jane Smith individual with some of the profits. Jane Smith the individual buys shoes and toothpaste, Jane Smith the business buys supplies, client dinners and postage.

Put it on your card. This may seem like crazy advice in our current culture of out of control debt, but remember a card can also be a debit card linked to your checking account! I counsel my clients to try to NEVER spend cash on business expenses. Why? Because if that cash receipt gets lost, there is no other record of the money that was spent. When you make business related purchases on your credit or debit card (or by writing a check from your business account), the record is there, in ink, on your statement and there is no more adding up piles of receipts. Again, I think this is a basic step you can take to make your life a whole lot easier.

Get financial software. Now that you have your personal and business expenses clearly defined, consider using a program like QuickBooks to enter all of your income and expenses. You can even download a simple version of the program for free from the QuickBooks website. Entering all of your purchases into a program like this can be tedious, but it will be tremendously satisfying when you can, at the push of a button, see how much you spent on supplies for the month of March, or which of your clients are the most profitable. Financial software is also great for creating your invoices. Rather than making Word or Excel documents that you try to organize yourself, the program will keep track of the invoices as you generate them and you can mark them paid as you receive payment. It is an easy way to make sure you’re not forgetting to chase down a payment, or to see who owes you what.

Ask for help. Even with a firm grasp on the importance of financial organization, the priority for business owners will always be doing the work that they love and ensuring the success of their business. If you just can’t find the time, don’t let your organization fall by the wayside. Many small businesses really benefit by having a bookkeeper come in, even for just a couple of hours every month. It’s not a huge cost, and usually the business owner’s time is more profitably spent working on their business for those hours, not doing their bookkeeping. The most important thing is to ALWAYS have an understanding of what your bookkeeper is doing and why. Some small business owners I have worked with want to outsource their bookkeeping so that they never have to deal with it again. I sympathize with this desire to be free of financial stress, but a business owner should consider the bookkeeper as a necessary enhancement to the functioning of her business not as a mysterious “fixer”. The bookkeeper should be there to provide the business owner with the information she needs to understand and improve her business.

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  • I’m confused about how to then decide your own salary for the shoes and toothpaste.
    Do you take a certain amount out of your business checking account and put it into your personal checking account and mark it salary on your records? And how do you decide what that amount is?

  • Those basics are so so true.
    There are also several applications to download on iphone or Blackberry to help you keep track of expenses on the road. This has always been the tough point for me.

  • I found the encouraging spirit of this article refreshing! When something seems slightly intimidating -I want someone to hold my hand and give me a gentle push on the back versus ‘you have to do this, or else’ type statements. :) Thank you for the timely advice.

  • Thank you for the great advice on separating business and personal accounts. I’m on it!

    The QuickBooks free download is only for PC users. Can you recommend free software available for those of us on Macs?

  • I like the idea of a separate account, but what if you are just starting out and would probably usually be in the red-zone? I think this would scare me unless I know for sure I am turning a profit each month.

  • the ‘put it on your card’ tip is a life saver – how many times I have lost an important business receipt for something I paid for in cash! I had no idea a credit card line item would be IRS-acceptable. Thanks!

  • thank you for the helpful information. I’m with Nicole on the question “but when do you take some out…and how much…and what do you call it?”

  • Thank you for this article. I just went through all my invoices, reciepts, bank statements, etc. a few weeks ago and feel so relieved to have it all straight in my head and on paper. JUST DO IT, ladies! It’s a huge weight lifted if you don’t enjoy that part of your biz so much.

    What I am terrified about is tax time. Could you have an article on what to do to submit taxes for the first time as a sole proprietorship? I don’t even know where to begin.

    • victoria

      we’re working on a tax article right now- hope to have it up in a few weeks. i highly suggest working with a small biz accountant though- a sole proprietorship is def. a trickier one (i’ve done that for the past 4 years) and it helps to have a pro tell you what to deduct and not to deduct.


  • I ran out and got a business checking account after reading this yesterday. This article speaks to things I really need to work on as a business owner/sole proprietor. Thank you so much!

  • Great advice. I’ve got everything filed and spreadsheets up to date, didn’t think to get a separate bank account. It’s nice to have a nudge in the right direction :D

  • Ah – the worries of business ownership. This is a really good article to remind people to look carefully and manage their finances properly. Just to add on, it’s always good to shop around for lower prices for supplies and ensure that there’s always a bit of extra something in storage for times when there might be more demand you can handle – best to keep customers satisfied than impatient and waiting!

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