It doesn’t matter what type of business you’re starting, understanding and having control over your business finances is an essential part of your success. Most new entrepreneurs focus on product development, marketing, and brand building – but what happens when the profits start rolling in.
Managing a business budget is much different than handling your personal finances. You’ll want to have a strong understanding of the costs and expenses associated with running your business. We’ve compiled a few simple steps to help you gain a general understanding of how to handle your business finances.
You can’t implement what you don’t know.
You’re excited about your business. You’ve read countless books and articles on funding, branding, and social media marketing. However, how much do you know about forecasting, net profit, fixed costs… etc?
Most business owners have their area of specialty and they’re often quite good at what they do. The problem is being creative or innovative is not the same as having the knowledge to handle the operations of a business. Do your research. There are plenty of resources available to you. Find one that matches how you learn best (in-person course, webinar, book, or podcast), and get started.
don’t co-mingle funds
Mixing your personal and business finances is one area that you want to steer clear of. In the beginning, you’ll likely invest quite a bit of your personal funds into your venture… and you’ll probably find yourself whipping out your personal credit card a few times too. But you want to quickly establish a system that separates the two. Completely.
Trying to navigate business expenses is virtually impossible when there’s no clear distinction in how you’re handling your finances. Imagine trying to remember which fuel costs were business related and which were for your weekly carpool. Additionally, tax time will be a nightmare and you don’t want your chaotic record keeping to throw up red flags to the IRS.
- Open a separate business checking account.
- Find a small business or self-employed accounting software that works for you or consider outsourcing the task to a bookkeeper or accountant.
- Open a business credit card for expenses. If you don’t have established business credit Wells Fargo has a secured business credit card to help you get started.
labor is a very real expense
When you’re a solo-preneur it’s easy to count all revenue above materials, packaging, and shipping as profit. It’s because most entrepreneurs don’t count their personal labor and time as an expense. However, has your business grows and you begin to grow and establish a team, labor costs can quickly become your biggest expense.
Tip: use this Labor Cost Calculator | Sling provides it to assist you with calculating the true cost of having employees.
Start counting your labor costs early, so that you have a clear picture of the true costs of doing business. Even if you’re not paying yourself a paycheck and have opted to reinvest what would be your pay, track the costs associated. This will help you make accurate projections as to how hiring an employee will affect your bottom line. You don’t want to have a false sense of profitability that is really just based on you working for free.