Financial checklist for new small business owners

When it comes to finances, your small business clients—and especially new small business clients—have their work cut out for them. Especially at tax time.

Not only do they have to manage their business expenses, but they also have to look after their personal finances as well. And as many small business owners understand all too well, business and personal priorities don’t always align. Effectively managing both is a true balancing act (no pun).  That’s where you can help not only as their insurance agent, but also as a business consultant.

While it is understandably tempting to dip into personal funds for start-up ventures and expenses, it’s equally important they keep tabs on their own money as well. Effectively doing so will help ensure they don’t lose sight of their personal finances—or their sanity.
Share these six points below as a checklist below to not only help your new business owner-client manage their personal and business finances, but also ensure that both thrive:

New business owner financial and tax tips

1. Separate personal and business accounts: As a startup entrepreneur, this may seem obvious but is in fact much harder than many new business owners realize. Being so understandably invested in your business lends itself to easily losing sight of where your business ends and you begin. While that level of passion and commitment is admirable, it shouldn’t apply to your finances.

Keeping your business and personal finances separate is important for a number of reasons:

  • It ensures you do not place the burden of your business financials on your personal funds.
  • It will lend your business more credit and legitimacy when it is viewed and structured as a separate entity.
  • It will save you from a world of pain and headache when it comes time to deducting tax expenses.
  • It will allow your business to build credit, further protecting your personal finances.
  • It will spare you from having to assume personal liability in the event that your business is ever negatively impacted.

When you first launch your business, make the first order of operations to open separate business checking and savings accounts with corresponding debit and credit cards solely for business expenses. This is a great place to start for separating your business and personal accounts.

2. Have a good buffer: As the old adage states, put away for a rainy day because at some point, it will rain.  While it’s important to remain positive, odds are that business won’t always be booming month after month, especially when you’re initially attempting to launch it. Inconsistent income will likely be a reality for at least a while. Especially if the nature of your business is seasonal, it’s vital to have enough to be able to weather the slow seasons. A general rule of thumb is to budget enough to cover your expenses for at least three months. If you can somehow manage to put aside more than that, even better.

Related: Steps to Creating an Effective Loss Control Program

3. Prepare for retirement: Retirement planning may be the last thing on your mind while wholly focused on attempting to get your business off the ground. However, this initial step is especially important for entrepreneurs who don’t have automatic access to the retirement savings accounts offered by most employers. You don’t have to funnel a ton of money towards a retirement fund, but whatever you’re able to put away now will not only help keep taxes low but will also grow tax-deferred until you decide to use the funds.
The retirement plan options for small businesses are diverse: a SEP-IRA, a ROTH IRA, a Solo 401(k), or a SIMPLE 401(k). All but the SEP-IRAs work for sole proprietorships, partnerships, LLCs, or corporations. Before choosing a retirement plan, do your research on what each offers and which option is best for you and plan your retirement goals.

4. Set—and stick to—a budget: This advice applies to both business and personal finances. It can be hard to commit to a budget ahead of time when growing your business is your top priority. While a degree of risk-taking is inherently involved in any new business venture, there is a calculated (and budgeted) way of doing so. Constantly evaluating your projected monthly expenses and identifying expenditure patterns will help you set a realistic budget as well as revise spending habits to help your money work harder and smarter for you. You may also want to consider using an expense tracker to help you stick to your budget.

5. Automate your bills: When first starting off, you’re spending the majority of your time and focus on business development, which can make it way too easy to lose track of paying bills on time. Setting up automatic payments on any business loans or credit cards is an easy time saver when you have a full plate of financial responsibility while ensuring you constantly protect and improve your credit score. If you’d like to view your bills first, you can opt to receive alerts that allow you to review your accounts prior to paying.

6. Rely on a professional: Having a professional accountant you can call when tax season rolls around will not only spare you from unnecessary stress, but will also ensure you don’t land yourself in any financial hot water.
Current small business tax laws are complex, to say the least, and are only becoming increasingly more so as the laws change. Depending on how you choose to structure your business, there are a variety of correct ways to file taxes. Attempting to ensure you’re filing properly can result in a (tough and potentially very costly) guessing game. Calling on a professional with a thorough understanding of tax systems and laws will help you determine your taxes based on your state of operation and business entity. It will also help identify opportunities for tax deductions that will help save your business significant amounts of money.

See our previous post for tax tips on how to keep your finances organized to best prepare for tax time.