As a small business owner, one of the greatest challenges that you will face is learning to weave through the complex and ever evolving landscape of your company’s finances.
From tax planning and optimization to payroll to employee benefits, there are a myriad of different challenges and obstacles facing today’s entrepreneurs and, unfortunately, few of us are equipped with the knowledge or know-how to solve them.
As a business owner myself and a highly recognized financial planner, I’ve learned more than a few handy tips to help you navigate the world of small business finance like a pro.
This is by no measure an exhaustive or comprehensive guide to managing your company’s finances, but if you’ll take action on what I’m about to share, you’ll be surprised at how quickly your financial management will transform.
Then let’s get started.
1. Hire a Top Level Accountant or Tax Professional
Trust me when I say that you do not want to take on the responsibility of doing your company’s taxes or managing its finances.
I know that most entrepreneurs are self reliant “do-it-yourself’ers” but I can promise that you don’t want to try and crack the code to the craziness that are our federal and state tax laws.
Successful entrepreneurs know to focus on their “area of genius” and outsource everything else.
So unless you are a professional CPA (and even if you are – I don’t even handle my own taxes), trying to handle your company’s taxes by yourself is a recipe for disaster.
It’s worth spending a little bit of money to hire a professional and make sure that you’re not only optimizing your deductions and getting the most out of your accounts.
2. Keep Your Personal and Business Accounts Separate
Although it might seem like an unnecessary hassle, making sure that your personal and business accounts remain separated will go a long way in keeping you organized and streamlining your taxes.
Yes, this means you will need to set up a business checking and savings account (which will come in handy for implementing tip #3), but the little bit of effort on the front end will save you hours – and potentially thousands of dollars – when it comes time to pay your friendly Uncle Sam.
3. Set Aside at Least 25% of Your Business/Contracting Income for Taxes
As an entrepreneur or independent contractor, it’s all too easy to overestimate your deductions and get into the bad habit of spending your money before saving for taxes.
You say to yourself, “Oh, I’ll just take care of it next month” but before you know it, April has rolled around and you find yourself 5-figures+ in debt to the IRS.
Even with the relatively nominal 5% annual interest on late tax payments, I’m assuming that you don’t want to owe get stuck paying back taxes for the next 5 years… Right?
As a good rule of thumb, if you don’t have a payroll setup for yourself that automatically deducts estimated taxes, you’ll want to put at least 25% of your earnings in your business savings account.
Set your accounts up to automatically draft 25% of your monthly take-home and before you know it, you won’t even realize that it’s gone.
4. Pay Your Estimated Taxes Quarterly
Taxes are a pain.
There’s no denying it.
Watching 25% to 40% of your hard earned cash vanish into thin air isn’t exactly an uplifting occasion.
However, by “spreading out the pain” over each quarter, you’ll ensure that you avoid any failure-to-pay penalties and dodge potential audits.
When it comes time to file your annual return, you’ll thank yourself.
5. STAY Organized
This should go without saying, but since I’ve worked with so many entrepreneurs who ignore this advice… I’m going to say it anyways.
If you don’t have a bookkeeper or a high quality accounting software (like Quickbooks or Xero) to organize your bills, payments, profits, losses, and tax documents, then you are setting yourself up for a nightmarish financial reality.
I know you might not want to fork out the cash to pay a book keeper but having someone else to offload the burden of keeping your finances in order will pay for itself faster than almost any other investment.
6. Leverage EVERY (Lawful) Business Tax Deduction and Credit Available
If you own a business or file as “self employed”, then you’re in luck.
There are dozens of deductions available to you that aren’t an option for a standard W-2 employee.
From deducing your internet or cell phone bill, to travel expenses, to the cost associated with your home office, there are a myriad of different ways to lower your tax bill.
Be sure to ask your accountant about any deductions for which you might qualify.
7. Double Check All Tax Forms You Receive for Services
The last thing that you want to deal with during tax season is an out of date or inaccurate 1099-MISC that makes it difficult for you to claim expenses you paid for any contractors you hired.
Be sure to double and triple check these forms as you receive them to avoid issues later down the line.
8. Setup a Retirement Account for Your Business
Max out your IRA or Roth IRA as soon as you can and, as your business starts to grow, considering setting up a SEP-IRA or Solo 401(k) to increase your the number of deductible contributions you can make and further reduce your tax burden.
Although most of these tips might sound like common sense, all too often they aren’t common practice.
With all of the other responsibilities that you must tend to as an entrepreneur or self employed contractor, it’s easy to let your finances slide and avoid delegating or outsourcing the more challenging tasks.
But I challenge you to take action on what I’ve shared today.
If you do, I promise that you will experience less financial stress and more abundance in 2019 and beyond.
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