Guest Blog by Melisa Gage, PA
I have not always been an accountant. I used to own a store. I planned everything from the paint colors on the walls, signs and shelves, to every item I would sell and where I would place it. I spent hours dreaming and thinking of how to make everything perfect. I had countless drawings and lists.
But I spent many mornings dreading the minute I would log in to check my bank account balance – because it never had as much money as I thought it would (which then led to hours of wondering why). I worked so hard every day and the cash register said I made money, what was going on? Why was no money coming home for my family?
This is such a common problem for small business owners. We fail to create financial plans. And that’s why my goal as an accountant is to help other small business owners skip the anxiety ridden errors I made and enjoy a more profitable business by creating a firm foundation. Your business should make you money, not stress!
My own stressful time could have been so easily avoided and here is how…
Track Your Expenses
When you started your business you probably had a set amount of start-up funds. You should plan for every dollar just like you plan your colors and products! Your plan (aka budget) needs to include a way to track expenses from day one.
No, this does not mean a monthly fee or expensive app. A simple spreadsheet will work, so you can track where all your money goes. Once you open your business, this same spreadsheet should show all your income – that means every penny before you pay any bills or yourself.
See, it’s the little things, $20 for lunch, $1 for a soda, $10 for gas, these little things add up. Keep a small tablet and envelope for your receipts with you and then update your spreadsheet each night. It won’t take more than five minutes and will save you a huge headache in the end.
Keep Your Business Finances Separate from Your Personal Ones.
Many small business owners have a tendency to mix their personal finances with their business finances, which is a huge stress creator. The simple fix? Open a business bank account and keep things separate.
I know that many times it’s such a small amount each month you may feel it is not worth it. But, by having a separate account you can:
- Easily track your expenses (since you won’t have to constantly try to untangle them from your personal expenses).
- Build a relationship with a local bank which can help you in the future when you’re ready to grow your business. Even in our online world, having a firm financial relationship can be very profitable!
- Maintain tax compliance. Mixing business and personal funds is a huge NO NO in the tax world.
Chat with both an Accountant and an Attorney in Your Local Area
A question that slowly builds in the mind of a business owner is “Am I legal?” Let’s be honest, unless you’re an accountant or an attorney this is really not your field of expertise. Remember I mentioned having a budget? Speaking with professionals should be figured in to that budget. I know it’s not the most exciting, and at the moment it may not feel like it will make you money, but trust me it will. Knowing that you have all your legal documents in line and your business setup correctly will allow you to sleep like a baby.
As an accountant, I am not exaggerating when I say that every week I meet a business owner in tears because the IRS or state tax office has made a visit and wants both money and documentation (which most business owners neither realized they would need nor have). Ignorance is not bliss and will not work. It may get you an extension so that you can keep your doors open, but it won’t get you out of fines and penalties. Don’t be fooled and think because you work at home this won’t happen.
And for an overview of the legal issues you should be considering in your online business, snag a copy of An Online Entrepreneur’s Guide to Starting a Business here.
Questions You Should Ask Your Accountant
Here are just a few areas to get help in from a professional accountant and/or tax preparer:
- What is the correct tax structure for your business (Sole Proprietor, Partnership, S-Corp, C-Corp or Non-Profit)? And if you’re already set up, what does the tax structure you chose mean for your business? Your tax structure determines how you should track your finances, what deductions you are eligible for, and how to prepare your taxes. If you decided to LLC your company then this adds another element you should understand. I recommend you seek the advice of any attorney as well to fully understand the implications and benefits of these choices. You can read more about various business structures and their legal and tax implications here.
2. If you are hiring help, are your workers independent contractors or employees? There are guidelines for this determination that are important to understand as well as required documents. You don’t want to have to worry about a disgruntled former worker alleging you misclassified them or filing your tax documents incorrectly. For an explanation of independent contractor versus employee, read more here.
3. What is the sales tax for your state? Don’t be fooled into thinking that because you sell online you don’t have to pay sales tax. Each State has its own rules and many times the sales tax laws haven’t caught up to the virtual world.
4. What steps should I take for tax preparation (and mitigation)? The 2018 tax year brought many tax law changes and small business owners have very strict guidelines as to what they can and cannot claim as deductions. Many ‘loopholes’ are no longer available because the IRS and State have slowly started to meet up with the virtual world. The most common financial mistakes are ones that lose us deductions (so we end up paying higher income taxes simply because we are not aware of all the legal deductions available to us). Don’t lose money to Uncle Sam out of fear! Meet with an accountant at least once a year to review your finances and eligible deductions and then have an experienced tax preparer file for you.
When I look back at my experience as a store owner, I wish I had followed these steps. Owning a business should be profitable and pleasurable. I always say, “Know your money to grow your money!” Because owning a business that does not make a profit is really just an expensive hobby. Here’s to making money and not stress!
About the Author: Melisa Gage is the owner of Advanced Accounting Services. She’s an accountant with 18 years of experience who helps small business owners find affordable financial solutions that WILL grow their wealth. You may assume that she loves numbers but really her love is finances. Melisa enjoys counting money, making money, growing money and everything that surrounds that process. She is a crazy chaotic granola mother, wife, and daughter with a business plan to simply de-stress your businesses financials while saving you a TON of money. For more information about how Melisa can help you KNOW your money to GROW your money visit: