If you’re setting out on your own and starting your own business, you might find yourself struggling to pinpoint the best way to handle your income. There are many questions that you may have, and taking the wrong path could mean that you wind up running out of money, or owing thousands in taxes that you can’t afford. If you need to get a fix on your financial situation and you don’t know where to start, check out these tips for making the most of your money.
Make a Budget
Your first step if you want to make sure that you’re making the best decisions possible with your money is to sit down and figure out a budget. Just like packing a map (or more likely in today’s world, a GPS of some kind) before heading out on a trip, coming up with a budget before you do anything else will give you a solid frame of reference for all of your subsequent decisions.
Put Aside Money for Taxes
One of the biggest mistakes that you can make when running your own business is to fail to set money aside for taxes. This is something that people may not even think about, especially because employees at regular jobs have their taxes automatically withheld. Unfortunately, the freedom of self-employment comes with the burden of handling your own taxes, and in most cases with paying them quarterly instead of yearly. Talk with a professional to determine how much you need to be putting aside for taxes, then make sure to keep current. Thousands of dollars of back taxes and late fees are easily enough to cripple or destroy your small business.
Pay Yourself A Salary
It can be hard to get past the thinking that every dollar you bring in should be yours to do with as you please, but putting yourself on a salary is a necessary step to help control your business’ finances. If you’ve determined that you can live comfortably on, say, $4,000 a month, pay yourself that amount every month. If you have a better-than-normal month, resist the urge to take more, and instead leave the surplus in your business account to compensate for the months that might not be so good.
Think In Percentages
Other than your salary, the way you divide up your money should be done by percentages and applied to every check that comes in. If you’re putting 30% away for taxes and 10% away for retirement, stick to those numbers whether you get a $10,000 check or a $50 one. That way, you have a uniform plan that can be easily applied to any amount you receive.
Set Up An Emergency Fund
An emergency fund is often touted as a good idea for everyone, but when you’re self-employed, it’s an even bigger necessity. This fund should have enough money in it to cover your basic expenses for 3-6 months at the least, and should only used as a last resort. Think of this as your safety net for your worst-case scenario, such as a long period of no sales, a lawsuit, or your business going under.
Start Planning For Retirement
This statement can apply to everyone from teenagers to seasoned business veterans – if you’re not planning for your retirement, you need to start. It may seem like a daunting task to begin on your own, but there are plenty of professionals out there that can help you choose the right plan for your situation and help you get set up. It’s easier than it seems, and you’ll be thanking yourself for taking those steps as you approach retirement age.
A little planning combined with spending discipline will make sure that your business can weather the rough months and make the most of the good months. The stability of working for someone else may be something that you miss, but if you’re smart, you can have the same amount of stability all by yourself.
Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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