Finances and budgeting can seem like big scary things. That’s why, instead of using the word budgeting, I recommend you call it a financial plan or map. And today, let’s make sure that your personal and business financial plan are both separate, strong, and ready for the rest of the year.
Your Business Financial Plan Should be Separated from Your Personal Finances
Many entrepreneurs and business people don’t realize this one, simple fact: your business and personal finances are separate. As such, they deserve separate accounts. So the first thing you need to do in order to get your business finances mapped out is to go open a business account right now. Really. Go take care of it!
Once you’ve separated your accounts, then we can see how your business needs a separate financial plan or map from your personal budget. And we’ll start it all by tracking our income and expenses.
1. Track Everything in Your Business Finances
In order to make your business work best, you need to know where your money is coming from. You also need to know where your money is going. And the only way to do that is to track it all.
Now, before we start, I do want to give you this piece of advice: hold out 25% of all income for taxes.
This way you won’t get sticker shock come tax time! This way you’ve got a plan for that.
That being said, you’ll want to pick a software or a program or an app to manage all of your business tracking. Whether you’re using a software on your bank, credit union, something like QuickBooks, an excel spreadsheet, an app, or whatever else. The one that is best is the one that works for you.
So find that one that’s best for you.
Track your Income – and Where it Comes From!
List out every little piece of your business where you get income. Every widget, product, or service you sell – list it. List every transaction, whether it’s online or in person. List them out one by one along with the price points.
That way you can see what’s working and what’s not. Then, you’ll be able to use that evaluation to shift your energy to what’s working and making money. So track everything that brings you money!
Track All Business Expenses
Yes, you’re going to want to track everything. Most people get caught here in the first 1-5 years as you build your business and you invest more and more. But you’re going to be able to use this tracking so that you can turn a profit and get paid.
So, break down your expenses. You’ll need to keep track of: materials, supplies, printers and paper, and other basic supplies. Every time you go to Office Depot or order from Amazon, keep track of it.
You’ll also need to keep track of:
- Postage! If you’re sending goods, products, keep track of those expenses. Especially for Thank You notes, which I recommend you send.
- Physical location – if you have an office, that’s an expense. If you work at home, your square footage for your home office is part of your expenses. Talk to your accountant, but you should be able to expense part of your monthly utilities, phone bill, and internet as business expenses.
- Travel. Track it so you can use it! Use Expensify or MileIQ to keep track of the trip – the drive to and from the airport, hotels, meals. Take a picture of those receipts for that trip so that you know every expense for that trip will go for a write off. Because it can only be an expense if you track it.
- Conventions and training are also regular expenses you need to track.
- Marketing and ads – people throw little bits of money here and there. It’s ok to do them strategically, but don’t just throw money at it and wonder where it all went. You need a strategy and to track it!
- Insurance – find the right business agent for you to cover your butt and your business.
- Credit card fees add up fast, so track them.
- Monthly fees for programs – if they bring you value, keep it! But if you’re just recurring fees monthly and it’s not brining value, think about changing it.
Now that you’re tracking everything, it’s time for some basic business math – so that you get paid.
Track Your Business Money and Know Where It’s Going
This will be a brief summary of the business math, because it’s a big topic. But when you look at what you make (your revenue), you’ll need to take the expenses out. That leaves you your gross profit.
From there, 25% will be needed for taxes. From your net profit, you can get into taking your salary and taking a profit and creating a regular transfer from your business account as an owner’s draw for your salary.
Or, if you prefer math equations, here you go:
Revenue – total expenses = gross profit – taxes (25%) = net profit
But the big advantage to doing it this way is that you’re creating a solid business financial plan for your business. In other words, you’re setting things up to first take care of things so that you don’t dip into your personal expenses. And because you’re already tracking everything, you’re set.
And now that you’ve been tracking your income and your expenses, it’s time for you to get paid and for your business to grow.