Thursday, October 18, 2018

Business Bank Account Checklist: Documents You'll Need

Opening a business bank account is much different from opening a personal account.

"There are various factors business owners should consider when opening a business bank account," said Chas Rampenthal, general counsel at LegalZoom. "It’s essential to prepare all necessary documents from the get-go in order to facilitate a painless process."

Doing-business-as name (DBA)

A DBA, often referred to as a "fictitious name," allows you to conduct business "like marketing or advertising or accept money under a name that differs from the existing name of your business," said Deborah Sweeney, CEO of She added that most banks require a certified copy of a DBA to open a business bank account, since entrepreneurs aren't allowed to use their personal accounts under their business name.

"Filing for a DBA allows entities to do business under another name without having to form a new organization. For example, imagine an entrepreneur named Tom Johnson. Tom is a sole proprietor who runs his own business and wants to open up a sandwich shop called Subs 'n Chips. Tom wants this business to operate under the Subs 'n Chips name and not under his own name, Tom Johnson. As such, he would need to register for a DBA so he could do business under this name, including accepting and signing checks made out to and on behalf of Subs 'n Chips."

Employment Identification Number (EIN)

If you're a sole proprietor, you will need an EIN, your Social Security number, and a driver's license or passport, according to Levi King, founder and CEO of credit solutions and monitoring firm Nav.

"These are used to prevent identity theft, fraud, terrorism, laundering, etc.," said entrepreneur Jay Coates. King added that, while some banks allow sole proprietors to open accounts without an EIN, it's still a good idea to create one to prevent the things Coates stated.

Rampenthal said that the EIN is an integral tool for managing taxes and paying employees.

"Sole proprietors may use their Social Security number for business tax purposes in lieu of an EIN," he added. "You can obtain an EIN for your business by filing with the IRS."

Articles of incorporation

Articles of incorporation are used to show the bank how the business is structured, and to register your business with the state and other entities.

"If you form a business as an LLC, limited partnership, corporation or other separate legal entity, to open a bank account, you will need the articles of incorporation that you filed with the state if you are the sole owner," said Tiffany Wright, president of The Resourceful CEO, a financing advisory firm for small and midsize businesses, and project director at Cogent Analytics LLC.

Business licenses

Rampenthal said that, regardless of business entity, banks will generally ask for your current business license to prove you are legally permitted to conduct business in your region.

"This also ensures that your business is accountable for all actions taken – including around taxes and finances," he said. "Check with your state, county and local governments to determine if you need any licenses to operate your business."

Identification documents
With any bank account, the opener is required to provide documents that prove their identity. A business bank account is no different.

"These can include a government-issued picture ID such as a driver's license or passport," Rampenthal said. "This is used in order to corroborate the business owner is indeed the person who owns and/or runs the corresponding business."

Is in person or online better?

Coates has experience opening a business bank account both in person and online, so he knows the benefits and downsides of each.

"When I opened my online account, I had to email and upload all of the above-mentioned documentation," he said. "Then I had to wait 48 hours for them to process it and open my account – versus in person, [where] the account was approved and opened [the] same day."

Rampenthal noted that some banks do not offer the option of opening a business account online, either to cut down on the risk of identity theft or due to the nature of certain businesses.

"No matter what type of business you own, you should always separate your personal and business finances," he said. "The first and most important step toward successfully separating your finances is to have separate bank accounts."

Image Credit: / Shutterstock

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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Wednesday, October 17, 2018

How to Keep Your Personal Finances Out of Your Business

If you haven’t separated your business finances from your personal finances yet, you’ll want to move that up to the top of your list.

Keeping personal and business finances separate can help you stay organized and provide plenty of peace of mind especially around tax time. If you’ve legitimized your business and became an LLC or S-Corp, keeping your finances mixed will cancel out any legal protections that come with having one of these entities.

How to Keep Personal and Business Finances Separate

I made the mistake of putting off separating my finances for almost a full year. The best time to get started is when you get your first payment and start making money. Here are a few tips to help you keep personal and business finances separate.

1. Open a Business or Separate Checking Account
You can’t fully separate your personal and business finances if you’re keeping everything in the same bank account. You want to open a business checking account so you can deposit for your revenue and manage business expenses all in the same place.

Some banks have strict requirements for business checking accounts. For example, PNC Bank requires you to have a minimum of $5,000 deposited into your account each month or maintain an average daily balance of $1,500 to avoid a monthly maintenance fee.

If you’re not sure if you can meet the bank’s requirements for a business checking account, simply start by opening a second personal checking account. You can treat it just like your business checking account and separate finances while you grow your business.

2. Consider Opening a Designated Business Credit Card
Most people skip this step after creating their separate business bank account. However, if you’re still making business-related purchases on a personal credit card, you’ll want to consider getting a business credit card as well.

You’ve probably already taken the time to build your credit score which allows you to get quality credit cards, mortgages, loans. As a business owner, you’ll want to have a separate business credit score in case you ever need to use business credit to expand, finance equipment or materials, etc.

An easy way to do this is by getting a business credit card. You can use it to pay business expenses and pay the bill off from your business checking account. This way, you keep business finances separate from personal finances, build your business credit, and perhaps even earn some rewards. American Express, Capital One, and Chase all have great business credit cards you can consider 

3. Pay Yourself a Salary
If your business provides a full-time income, you’ll want to make sure you’re paying yourself a salary to cover personal expenses. If you have an S-Corp business, you can pay yourself a salary just like a regular employee.

If you have an LLC or Sole Proprietorship, you can draw funds from a portion of your business revenue. Most business owners typically limit their wages to 50% of their business profits. Remember, you need to set aside money to pay taxes and also cover important business expenses including compensating your team members.

Create a personal and business budget so you can determine how much you need and do a better job at keeping finances separate.

4. Set Up Automatic Transfers to Keep Savings Separate
Don’t forget to separate savings for your business. If you need to make an unexpected purchase to keep operations running smoothly, will you take funds from your personal emergency fund? What if that leaves you with very little money to cover a family emergency expense?

It’s best to have some business savings to fall back on to protect your personal finances and keep things separate. If you’re pricing your products and services for profit, you can take a small percentage of your earnings and transfer it into high yield savings account for your business.

Keeping personal and business finances separate is often easier said than done, but it pays off in the end. Keeping finances separate is something all successful business owners do and it can give you more peace of mind and structure while you focus on building your business and making money.

Image Credit:

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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Tuesday, October 16, 2018

4 Reasons To Take Advantage Of Charity In Your Business

Customers want to buy from companies that do good. We all know this.

But despite the hype surrounding millennials and their buying habits, this is not a new trend.

Charity is important for all your customers
In fact, according to YouGov, 79% of millennials and 78% of  Generation X say that they prefer to buy from companies that do good in the world.

As this makes up everyone under the age of 50, if you’re ignoring charity, you’re ignoring the majority of your customers.

Philanthropy and social responsibility are at the heart of many successful businesses. Often, this stems from an appreciation of the power and importance of community engagement.

Andrew Nisbet, founder of Nisbets, says: “Often, the very success of our businesses goes hand in hand with the support, encouragement and hard work of our local communities.”

In marketing terms, philanthropy can be a very powerful tool. You often read a lot about what non-profits can learn from entrepreneurs, but there are also things that entrepreneurs can take from non-profits; this is not a one-way street. Here are just four benefits of giving back.

#1. Philanthropy gives you a partner who can extend your reach
Growing a startup can be lonely. It can also be difficult to build awareness and get yourself in front of your customers.

Philanthropy gives you a partner who instantly extends your marketing reach. But the key to using your philanthropy to deliver extended reach lies in choosing the right charity partner.

It’s no good just teaming up with your favourite good cause; when you’re a startup, to get the best results, it has to be a charity that resonates with your target audience. Or a charity that helps solve issues that affect both the company and their customers.

For example, UK retailer Marks & Spencer has a long history of supporting community charities that tackle poverty and exclusion. This is not by accident.

They need strong successful local communities to grow their business in the towns and cities where they have stores. As a member of the company’s founding family, David Sieff, said: “Healthy high streets need healthy backstreets.”

By partnering with local charities, Marks & Spencer gets extra opportunities to market in the community; they improve the social and financial health of the people who use their stores, and they extend their reach.

#2. Philanthropy gives you extra inspiration for marketing messages
Marketing messages are slippery things. By the time you’ve identified your target audience and explored what’s going on inside their head, you’re often so exhausted that the message itself falls flat.

It may feel like you can never get your message to hit. You may have gone to where your customers hang out online and in real life. You may even have the data to back up your marketing strategy.

This is where philanthropy can help. Charities are asking for free donations in a world where fewer people want to hand over their hard-earned cash.

So, working with them is an eye opener and can inspire you into new ways of thinking about how to approach your target audience.

To survive, charities have to break the rules and commit 100% to their messaging. That means they can help entrepreneurs cut through the noise to see only the things that really matter.

Take some of the most hard-hitting messages of recent years, for example, UNICEF Sweden’s 2013 message that got to the heart of our social media culture: “Likes don’t save lives. Money does.” Or WaterAid’s 2010 message: “Dig toilets, not graves”.

It’s this kind of thinking that you can use to create effective charity campaigns together. It will inspire your own messaging in the future.

#3. Philanthropy helps you build a good reputation that you can market
Despite what you might think, your reputation is not passive, it’s also active and evolving. A good reputation is powerful and it can save you from all kinds of challenges and problems in the future.

But it’s something that can’t be left alone; it needs constant attention to be effective. This is where philanthropy comes in.

Let’s face it, giant publicly quoted corporations don’t do philanthropy out of the goodness of their heart. They might have done in the early days, when their founders were young.

But once they get shareholders and dividends and all the rest, they do philanthropy because it makes sound business sense.

Something bad might happen: for example, a corporation gets a bad rap for the way they treat their factory workers. They can then point to all the good they do in the community. They can also point out how many lives they’re saving worldwide – and double down on marketing their philanthropic credentials.

And even if this rings hollow with many, it’s factual stuff that cannot be denied. This means a large percentage of the flack is deflected and ignored by their target audience.

Never underestimate the importance of philanthropy long term.

#4. Philanthropy creates free marketing opportunities
Finally, teaming up with a charity is news. No matter how small you are, you’re going to get free media coverage. Even if that’s only in the sector press or your local newspaper, it all counts.

But it gives you something else; it gives you an opportunity to create social media campaigns that draw the eye of the national media.

Today, the media needs an unending stream of content. And that’s something you can exploit. If you’re clever, you can create an online campaign that hits the zeitgeist and the sky is the limit.

Charities are becoming experts at this. Remember the #NoMakeUpSelfie? That was the charity Cancer Research and raised millions. And the Ice Bucket Challenge, that was ALS Association, the charity for research into Amyotrophic lateral sclerosis.

Charity partnerships can create outstandingly successful marketing campaigns such as the Bigger Issues campaign created by Unilever/Lynx and the charity CALM which highlighted the issue of male suicide.

If you can channel this kind of thinking, these kinds of partnerships and creative thinking can take your brand to the next level and beyond for free.

Philanthropy is more than just giving some money to a good cause. It’s a fantastic marketing opportunity, and every entrepreneur needs to take it seriously if they want to succeed long term.

Image Credit: Adobe

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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Monday, October 15, 2018

What Are Accounting Services?

Every business owner must hire outside experts to support company growth.

As your firm grows, you’ll likely retain the services of an attorney, an insurance agent, and other experts to improve your operations. Many owners, however, don’t consider the importance of accounting services.

Use this discussion to learn about the critical need for accounting services, and how they work.

Critical Need

Efficiency: You need experts to perform some of your accounting work, in order to operate more efficiently. Assume, for example, that you post accounting transactions into your accounting software system. If your business grows from 150 transactions a month to 500 transactions, you’ll spend more time on accounting, and your risk of error increases.

An accounting firm can help you maintain efficiency and accuracy as your firm grows.

Find capital: Many owners eventually need to find sources of capital, to grow their business. You may raise capital by issuing stock to investors, or by borrowing money from a bank. Both stock investors and creditors will require a set of audited financial statements prepared by an accounting firm.

Preparing for sale: You’ll need to have a variety of accounting records in place before a company sale can be completed. In addition to audited financial statements, a buyer will want to see supporting documentation, such as bank reconciliations, inventory reports, and payroll accounting records. These accounting records validate the value of your business to a buyer.

Make the decision to contact an accounting firm to discuss your business and the accounting services you may need.

Service Types

Bookkeeping: Bookkeeping refers to the recording of financial transactions in an accounting system. Rather than perform this process yourself, you can hire a bookkeeper to post customer sales transactions, inventory purchases, and company expenses into your accounting software. Using the services of a bookkeeper frees up your time for other important business tasks.

Payroll services: Because payroll tax laws change frequently, processing payroll is often the most complicated accounting task for a business. Adding new hires, and removing payroll data for employees who leave can be time-consuming. You can hire an accounting firm or a payroll service to manage payroll and to calculate tax and benefit withholdings for employees.

Financial statement preparation: An accountant can use the transactions prepared by a bookkeeper, along with payroll data, to generate monthly financial statements, including the balance sheet and income statement. Business owners use financial statements to assess business performance and to make informed business decisions.

Audit: An audit is a written opinion provided by an accounting firm, and opinion states whether or not the financial statements are free of material misstatement. The term “material” refers to an error in the financial statements that would change the opinion of a financial statement reader. Assume, for example, a business has a $3 million inventory balance. A $50 error in inventory may not be material, but a $5,000 error may be. Investors and creditors review audited financial statements before investing or loaning money to a business.

Your small business may not need all of these accounting services right yet, but as you grow these services will become vital.

An Example

To help you understand accounting services and your business needs, assume that Julie operates Treeline Landscaping, a company that provides tree services and landscaping to homeowners. Julie’s business picks up in March of each year, to keep up with the increased volume she decides to hire a bookkeeper to post accounting transactions.

Treeline’s revenue continues to increase into the summer, and Julie must add a number of accounts for new types of revenue and expenses.

Eventually, Julie decides to hire Bob, an accountant, to manage the bookkeeper, generate monthly financial statements, and to help her make better financial decisions. To save time, Bob and Julie agree to outsource the payroll processing function to a third party.

In September, Julie has the opportunity to purchase a smaller landscaping firm and expand her business. In order to finance the purchase, Julie talks with a group of investors at Premier Capital. Both Julie and the investors agree that Treeline’s most recent annual financial statements should be audited.

Julie retains an independent CPA firm to conduct the audit. The auditors perform test work on each account balance, including a review of Treeline’s bank reconciliations, and a physical inspection to verify ownership of each company vehicle and piece of equipment. Premier Capital’s decision to invest in Treeline will, in part, be based in part on the audited financial statements.

Prepare for Success

As your business grows so the does the complexity of operating it. Many small business owners feel obligated to manage every aspect of their company. This often leads to misspent time and frustration.

Developing a team of knowledgeable professionals is key to the long-term growth of any small business. Hiring an accountant or contracting an accounting firm ensures the accuracy of financial statements as you build your company.

Image Credit:

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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Friday, October 12, 2018

9 Accounting Tasks You Should Do Every Day

It's easy to put off accounting tasks when you're a small business owner; so many other items on your to-do list seem more pressing. But, attending to these tasks daily helps you find and fix issues such as cash shortages and inventory discrepancies in a timely manner, while it's still relatively easy to track down who was involved and what happened. If you only tackle your accounting tasks monthly, you might not discover such issues for weeks, when it's more difficult to figure out.

As your receipts, sales orders, bills and financial statements pile up, you're missing out on the insights that up-to-date accounting gives you about the financial health of your business. In a blog entry for Bench, an online bookkeeping company, Brice Warnes writes, "When you look at your books, you want to know they reflect reality. If your bank account and your books don't match up, you could end up spending money you don't really have – or holding on to the money you could be investing in your business."

Here are nine accounting tasks you should do every day. If you have good accounting software, it can automate basic accounting tasks, making it easier to keep your financials up to date.

1. Refresh your financial data.
Ideally, your accounting software automatically does this for you each day, syncing your bank and credit card feeds and the sales data from your POS system into your accounting software. If it doesn't, you'll need to do this manually. This gives you an up-to-date look at your accounts, showing you the money moving in and out of your business.

2. If your business accepts cash, reconcile it against receipts.
Doing this at the end of each day helps you discover cash shortages or overages in a timely manner, so you can figure out where the money went and identify errors or theft.

3. Review and reconcile transactions.
If your accounting software is connected to your bank and synced daily, there's no need to wait for your monthly bank statement. Many accounting applications simplify reconciliation by suggesting matches, so all you have to do is review and approve them. Spending a little time on this task each day is easy and eliminates a grueling month-end chore. It's also a good time to review pending transactions for any errors or abnormalities that may be cause for concern, so you can investigate potential issues promptly.

4. Record payments you receive; deposit cash and checks.
If you receive paper checks and cash payments, deposit them daily to keep your cash flow healthy and your business account records up-to-date. If most of your accounts receivable are electronic payments and you have just a few paper checks, see if your bank accepts mobile deposits and what the daily, weekly and monthly limits are, as this can save you trips to the bank.

5. Record and categorize expenses.
Many accounting software have apps that you can use to report expenses and upload receipts, so it's easy to take care of them immediately – just snap a picture of the receipt and jot a note about what it was for – rather than sort through a stack of receipts at the end of the month and try to remember what each one is, and if it's a billable expense, which job or project it belongs to. [Looking for accounting software? Check out our best picks.]

6. Record inventory you receive.
Entering inventory into your system the same day you receive it keeps your system up-to-date, giving you a more accurate look at your stock. If you don't do this, your staff may lose sales, telling customers you're out of stock when in fact, an item just hasn't been entered into the system yet. Or, if your staff knows items are in stock and sell them, invoicing may be delayed if your system isn't set up to allow negative inventory counts.

7. Invoice your clients.
Billing clients in a timely manner helps them pay you on time. The products or services you provided are still fresh in their minds and if there's any discrepancy with the bill, it's easier to talk about it now rather than a month or more after the fact. The longer you wait to bill your client, the longer it will take to get paid.

In a Forbes article, John Rampton, founder of online payments company Due, says, "We've actually found that when you invoice the same day that the job is completed (as opposed to waiting two-plus weeks for your billing cycle) you are almost 1.5 [times] more likely to get paid."

8. Pay vendors, or at least schedule bills to be paid.
When you receive bills, review them for errors and look at the terms. If your vendors offer early payment discounts, schedule the payments to take advantage of them. Otherwise, set payment reminders so you can pay your bills on time and avoid late fees.

9. Back up your data.
If you're not using cloud-based accounting software that automatically backs up your data, back up your financial data manually every day. Doing so gives you peace of mind that you won't lose your data if you have a hardware failure, file corruption or some other issue.

One advantage of manually backing up your data is that it also allows you to revert to an earlier backup if you deleted something you shouldn't have or discover errors that would be easier to fix by going back to yesterday's saved version and reentering data rather than making significant adjustments. Automatic backups don't allow you to revert to a previous version, but they do take care of this daily task for you.

Image Credit: Shutterstock/Zadorozhnyi_Viktor

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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Thursday, October 11, 2018

3 Major Benefits of Updated Bookkeeping and Accounting Records

Last week in a discussion with a business coaching client, I asked if she had updated bookkeeping and accounting records that would help her make the best business decision for a big question about her business. “No,” she replied, she didn’t have updated books. Without them, any decision regarding product lines, pricing or customer capacity is just a guess!

Guessing is not the way to run a business. On the contrary, every business big and small should have regularly updated bookkeeping and accounting records so business leaders can make the right decision with a foundation in the data. Follow along to learn three big benefits of keeping your bookkeeping and accounting records updated on a regular basis and some tips to get you started with your bookkeeping for your business.

1. Strategically ladder-up your revenue
As a freelance writer for my primary income, one of my biggest goals is finding the best clients that offer me the most significant return on my time invested. While freelancing is a business that is tough to scale, I like to do something I call “laddering up” my clients where I climb up and add new high-quality clients while letting go lower-quality and lower-paying clients as they are replaced.

This process is great in theory, and most freelancers and business owners understand the concept. But why do they continue to struggle with low-quality clients? Because they don’t look at the numbers and objectively look for ways to bring on better clients and get rid of the bad ones. With no metrics, you might not even know which clients are draining your resources and which lead to the best profitability in your business.

A few months after quitting my job to go full-time online, a look at my own updated bookkeeping records showed that about 76 percent of my income came from writing while around 15 percent came from website development and support. That is a clear 80/20 rule example. I cut the 15 percent of my income that was taking way too much of my time and my total income roughly tripled over the next few months!

2. Cut underperforming products and services
The focus of my conversation with the coaching client focused on turning her services into a product she could sell for a fixed monthly subscription rate. But with no detailed accounting records beyond the reports she gets from her payment processor, she didn’t have any real records to show her income by customer or product. It doesn’t matter if you are a solo freelancer or a business with thousands of employees, you absolutely need this information!

With the right details in hand, you can pick out the one product that sucks away too much of your time for too little money. You can identify expensive recurring tasks you may be able to outsource or eliminate. As you can see from the example above, sometimes cutting underperforming products or services can lead to significant growth.

Success in this area of your business comes down to focus. But without properly updated bookkeeping and accounting records, you don’t know where to focus. You might be wasting hours and have no idea because you don’t have the data. End that big mistake right away. Get those accounting books together and keep them updated, at least monthly, so you can make the best management decisions.

3. Save time and money at tax time
If increasing revenues and cutting costs were not enough motivation to keep your books updated, here is one last lynchpin: your taxes. You have to do taxes if you have a business. That is not optional. What is optional is making it a stressful period by ignoring your accounting throughout the year and rushing to get it all done in April before the deadline.

Instead of this method, plan and keep your books updated at least once every month. I go a little over what most people need and update my accounting records weekly. But whatever you do, quarterly should be the bare minimum for bookkeeping updates for tax purposes.

While most individuals have to file and pay taxes once every year, most business owners and many side hustlers have to pay quarterly estimated taxes. While you can file and pay based on last year’s tax rates, keeping your books updated can help you get a better estimate if you need to pay more quarterly to avoid the big one-time lump payment in April.

If you have your bookkeeping updated, you just have to print out a P&L and balance sheet and can finish your taxes from there. No other prep needed!

4. Don’t ignore updated bookkeeping and accounting needs!
If you find the idea of accounting and bookkeeping intimidating, you can always hire an expert to handle it for you. My friend Eric Nisall at Account Lancer helps me when I have questions with my books and handles accounting for a long list of solo business leaders. But for the most part, I like to handle things myself.

However you decide to do your bookkeeping is great as long as you stick with it! If you don’t, you’ll quickly find yourself behind and with useless financial reports. With the right focus on your books, you have the right information to put your business on track to thrive for years to come.

Image Credit: Shutterstock

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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Monday, September 24, 2018

Budgeting Basics: How to Save on Inconsistent Income

While the freelance life commonly touts flexibility and greater earning potential—cue the Instagram photos typing away on a laptop in an exotic locale—there are also financial downsides. 

A major one? Struggling with variable income. For freelancers, artists, and other members of the gig economy, it’s awesome sauce when you experience a spike in your income one month, but pretty terrible when your income drops the next. And as a lot of common budgeting advice is based on the assumption that one gets a steady paycheck, how can you come up with a spending plan? One that helps you not only stay afloat but where you can make steady progress on your savings goals?  

Here are some tips on how you can budget when you deal with inconsistent income:  

First things first. Here are parts of a budget that day-jobbers don’t normally worry about:  

Keep a Robust Rainy Day Fund  

 While an emergency fund is an essential part of any budget, how much should you save when you experience variable income? The general rule of thumb is three to six months of living expenses. When you have to deal with peaks and valleys in your cash flow, you’ll want to keep a robust rainy day fund as possible. I aim to have at least six months of living expenses, more if I can swing it.  

Besides an emergency fund, having a buffer fund to get you through any gaps in income will help you pay your bills on time. I aim to keep about one month of living expenses in my savings account. That way I can transfer money directly to my checking and access money if possible.

Save for Estimated Taxes  

 One of the many joys of freelancing (not) is to pay Uncle Sam every quarter for estimated taxes. If you’re not saving consistently, this could blindside you. In turn, you may be left owning a lump sum at the end of the tax year, or incur late penalties. Instead, you’ll want to sock away each paycheck toward estimated taxes. I know, it hurts to see a portion of your income get devoured each month by the government. But not doing so will just lead to panic down the line.  

I get it. All these extra financial considerations is a tall order, especially when you’re just trying to get your rent and bills paid on time each month. Here are a few tips and tricks for budgeting on inconsistent income:  

Save When You Get Paid  

Research says “set and forget” money management is the best way to achieve your financial goals. However, it’s tough when your income fluctuates wildly. One easy way to avoid this is to set up an automatic saving withdrawal for the times when you do have extra money. For instance, auto transfer when you get paid, suggests Kristen Berman, co-founder and principal of Common Cents Lab.

“It’s even better to withdraw a percentage of your paycheck versus a fixed amount,” says Berman. “This means that that money will only be taken  if you have money, and leave the rest for you to spend.” For instance, instead of committing to $500 each paycheck, set up an auto transfer of 10 percent of each paycheck. Apps such as Qapital have the “Freelancers Rule,” where you can set up a percentage of each paycheck to go toward your savings.   

Saved Based on Percentage 

If you aren’t able to automate your savings based on percentage, commit to doing it manually. For instance, at the end of each month I’ll sock away a percentage of all the income that came in for estimated taxes. I’ll divvy up the remainder for my savings goals—retirement, a “fun” fund, an art fund (to buy art and for my own personal projects), emergency fund, and a fund for gifts (holiday spending stress is no joke).  

Total Up Your Income 

Map out your projected income for the year and do a 12-month cash flow to see what your actual peaks and valleys in income are, suggests Pamela Capalad, a certified financial planner and founder of Brunch & Budget. “Often freelancers live month to month because income feels ‘unpredictable,’ but you’ve been freelancing for a while, you will have seasons of income, explains Capalad. “Being aware of when those are will give you an idea of how to plan for the low- and high-income months.”  

To drum up a budget, try to calculate what earn yearly, suggests Berman. Research conducted by Common Cents reveals that looking at your income on an annual basis will help you make decisions for your future. “For example, instead of thinking about yourself as making $15 an hour, think about yourself as making $30,000 a year,” says Berman. “This annualized number makes saving a little bit for retirement feel more in reach.”  

To figure this out, track how much you’ve made on average in the last three months, or the last six months. If you’ve been freelancing for more than a year, you can base your yearly income from last year’s. I know it’s not a perfect science, but it gives you something to work off of.  

Anchor Yourself on Your Lowest Paycheck 

When your income fluctuates from paycheck to paycheck, depending on how many sources of income you have, try basing your budget on your lowest paycheck. For instance, if you are a rideshare driver and rake in about $800 a week, but also work part-time as a virtual assistant and make $250 a week, create a budget based on the $800 a week as a driver.  

“It may be tempting to tell yourself you make $600 a week, but if you’re only making that every other week, you’ll end up overspending,” says Berman. “When you anchor yourself on your lowest paycheck, you’ll feel better. Plus, all the additional money that comes in on good weeks will feel like a bonus!”  

Because I don’t have much of a regular income, I personally give myself a minimum income goal each month, and base my budget off of that. And if I surpass that goal, the rest technically can go toward my savings goals. Plus, I learn to keep my expenses low, so I don’t struggle with financial stress when I have a lull, which is inevitable.  

Make the Most of “Extra Paychecks”  

If you work a bunch of side hustles and get paid every Friday or every other Friday, there are two months of the year where you get an “extra paycheck.” While tempting, avoid spending this money on today’s wants, suggests Berman. Instead, spend it on tomorrow’s needs.” Put the extra money toward paying off your credit card, going to the dentist or into your car repair rainy day fund,” says Berman.  

You’ll want to make sure it’s going toward something intentional that will help you in the long run. One thing I’ve tried to do as a freelancer is to “get ahead by one month.” So by the end of November, I’ll have enough cash in the bank to cover my living expenses for the following month. So guess what you can do with those two extra paychecks each year? That’s right, it can go toward your “get ahead” fund.  

Contribute Annually  

If you’re having a hard time making contributions regularly, try to do so every few months or once a year, recommends Pamela Capalad. “If you don’t make more than your minimum expenses are a given month, don’t feel pressure to save,” says Capalad. “If you try to save in a low earning month, you may end up putting expenses on a credit card or trying to catch up on expenses in a high-earning month instead of saving it.”  

Contribute to savings, retirement and other long-term goals on your flush months. Or opt to contribute to a retirement account once a year instead of every month so you know exactly how much you can afford to contribute, says Capalad.  

While budgeting on inconsistent income will forever remain a challenge, keeping these pointers in mind will help you live within your means, and have some money saved up for the future.  

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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Friday, September 21, 2018

3 Easy Methods to Keep Track of Freelancer Income

Freelancers have a plethora of options to keep track of income throughout the month, but if you took a poll of freelancers you would probably find many don’t know the state of their finances. While it is common, operating without knowledge of your financial situation is a big risk and puts you on track for a major cash crunch.

Keeping Track of Income
While you should update your books monthly at minimum, you can use one of these three simple methods to keep track of income throughout the month as a freelancer. Investing just a few minutes in a good system yields great benefits for you.

Your bookkeeping app
The first place to look to keep track of your upcoming billings is the app you use for billings. If you enter work as you complete, you’ll always have an updated running list of payments coming your way and revenue ready for your next invoice cycle.

I use the task management app Asana to keep track of my recurring and completed assignments and add articles there as soon as I send them off. Then, every week or so, I copy the completed assignments into my bookkeeping program and can see a month-to-date revenue total. I use this to gauge how hard I need to work to hit my monthly $10,000 income goal.

With this method, I always have my finger on the pulse of my business revenue and can quickly tally up my progress for a view into my earnings. This method also helps me avoid missing any bills or invoices at the end of the month. It would be a shame to do work and not get paid for it!

A spreadsheet
If you want something light and agile to keep track of income throughout the month as a freelancer, that isn’t a bad idea. I spent nearly a decade of my life working on spreadsheets as my primary job responsibility, so to say I have an appreciation for the power of spreadsheets is an understatement.

You can set up simple or complex formulas to do the math and add up income as you go. As a writer, for example, you could create a new column or tab per client and use SUMIF to automatically come up with your total income month-to-date.

If you are an Excel superstar, you may even be able to layout a tab to print in a nicely formatted invoice. Of course, that doesn’t include the easy digital payment your clients might want, but it is an option to automate a step of a manual paper or PDF invoicing process.

Pen and paper
If you really want to do it old school, you can stick with the tried and true pen and paper. Whether it is a small notebook or pad or a binder filled with your work history, you can create a system that works for you with pen and paper.

I create a paper to-do list each morning and tally my revenue there daily and weekly, but lean on the digital solution above for my ultimate destination. With a digital list, you have tons of opportunity to automate and improve your systems. With paper and pen, that may be a bit more limited.

But that doesn’t mean it isn’t a method that can work well for you. The most important criteria is picking something you will actually keep up with and a system you can follow. If that requires regular old paper, that may be ideal for your unique needs.

Rely on the numbers
Many business personalities would encourage you to follow your gut, but this entrepreneur thinks the opposite should be the case. Rely on the numbers. Follow the numbers and you can find what works well in your business and what isn’t working. Without solid books and records, you can’t make the best business decisions.

When you set up systems like this, there are no unpleasant surprises. You should always have an idea of how your business is doing at any time. If you don’t, you have some catching up to do. But lucky for you, it doesn’t have to be difficult, time-consuming or expensive. You might just need a pen and paper.


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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