Most people know that once you become a business, it’s a good idea to work with a financial planner—but too many put off doing any real accounting until tax season rolls around. In the interim, they may have lost a lot of money by not setting up basic systems for budgeting, tracking expenses and getting their savings in shape.
Luckily, there’s help for anyone allergic to excel spreadsheets. Enter Society of Grownups, a Boston-based organization that teaches people “how to deal with adult responsibility without losing your soul or sense of adventure along the way.” They offer 90-minute one-on-one appointments with a Certified Financial Planner (CFP®) as well as classes for freelancers and small business owners. And for those not in Boston, their blog has great content for small business owners. We asked Karen Carr, CFP®, to share her simple, doable strategies for working with an accountant and financial planner.
1. Plan your personal and professional goals together.
Your business and your personal financial goals are inevitably linked. A financial planner should aim to get to know all of your goals (both personal and professional) and work with you to design a plan to get there. Running your own small business can be consuming. A planner can be there to help you balance your needs for yourself and your business right now while helping you keep an eye on your future.
2. Understand the difference between a financial planner and tax professional.
You might be wondering what the difference is between a financial planner and a tax professional. A tax professional specializes in tax planning, filing or any other tax issues. However, a CFP® has a much broader scope. Often small business owners will need the help of both experts at one point. Finding the right professionals to support your goals may help save you money in the long run by allowing you to focus on what you’re great at: running your business!
3. Take the long view and plan for change.
Establishing a long-term relationship with a financial planner means that you have an advocate in your corner who already knows both you and your business. If you go through a major life change (marriage, kids, home ownership) or your business hits a growth spurt (or even a roadblock), you’ll have a financial professional available to suggest adjustments to your plan and create a strategy that may help keep you on track to reach your goals.
4. Set up the right legal structure and tax system for your business.
When considering legal structures, think about where your business is today, and also where you want it to go. Sole proprietorship is the way a lot of small businesses get started, since it doesn’t require any legal work upfront, but your business may outgrow this structure. An LLC allows you to separate your business from yourself for legal purposes (for example, you’ll have some extra protections in case of a lawsuit), but for tax purposes, all of the profits and losses of your biz pass through you. Just like an LLC, an S-Corp is also a separate legal entity but things get a bit more complicated since you’ll receive wages and dividends from the business and be taxed accordingly. Determining the right legal structure for you and your business can be complicated. Weigh the pros and cons of additional legal protection versus more tax complexity. When in doubt, always contact a tax professional.
5. Find an accounting program that works for you.
There’s a budgeting app for everyone; it’s just about finding one that works for you. When it comes to personal budgeting and saving, Mint.com is great for those that love lots of data while Level Money is better for someone that prefers to see the big picture. If you’re looking for an app to help you with the finances of your small biz, check out Wave or FreshBooks. Not into apps? Remember, you can never go wrong with an old fashioned spreadsheet.
6. Get organized and track your expenses.
One of the core tenets of being a small business owner is good record keeping. First off, make sure you open a separate bank account and credit card for business expenses. Keeping personal and business transactions separate will make record keeping much more streamlined. Next, do your research to understand which business expenses are deductible and which are not. Lastly, recognize what you don’t know and pull in a tax professional when you need to.
7. Make sure you’re withholding enough for taxes.
When you work for an employer, they’re the ones withholding taxes from each of your paychecks throughout the year to cover your tax bill come April 15. However, when you work for yourself, you take on this responsibility. If the legal status of your business is not a corporation and you do not have any employees, you likely need to pay estimated taxes each quarter on your income (more info here). This may seem like extra work, which of course it is, but it means you cut your risk of being saddled with a huge tax bill at the end of the year since you’ve been paying all along.
8. Automate your savings.
Simple systems can be a small business owner’s best friend. Automating bills, invoicing, bookkeeping, payroll and other administrative tasks allows you to spend more time focusing on your core business and hopefully increasing your profits! The key here is to create a system for the day-to-day operations of your business, write it down (even if you’re the only one who will ever read it) and be consistent. Not only should your systems save you time, they can also allow you to scale more efficiently and easily onboard and train new employees as you grow.
9. Set a goal for retirement savings.
It can be tempting to set retirement savings aside in order to grow your business, but time is your biggest asset and you don’t want to waste it—so get started! There’s a number of retirement plans available to self-employed individuals and small business owners: SEP IRA, SE 401k, SIMPLE IRA, Roth or Traditional IRA. Don’t let the plethora of accounts scare you. The key here is to just get started by setting aside a portion (no matter how big or how small) of your income each month, quarter, or when you receive payment from a client—whatever works for you.
10. Spend less, save more.
Reducing expenses as a small business isn’t all that different from cutting spending as an individual. Review your spending (yes, every transaction!) over the last two-to-three months with a fine-tooth comb. Does anything stand out to you as something that can be cut back or eliminated altogether? Pay close attention to the big line items like payroll and office space, but also to the little things that can really add up like bank fees or any discretionary spending that isn’t essential to your business.
11. Make charitable donations.
The benefits of charitable donations for a small business can range from a tax deduction, to marketing and promotion, or even to bringing in new customers. If you’re hoping for a tax break, make sure that you’re donating to an eligible organization and keeping good records (more info here).
Also, don’t hesitate to think beyond cash. Donating your services and expertise can go a long way. If you’re a web designer, ask a nonprofit if they need help upgrading their website or host a fundraising event for a charity in your area if you specialize in event planning.
The information contained in this article is not meant as legal, tax, or investment advice, is provided for informational purposes only, and may not apply or be useful to your specific financial situation. Any third-party resources or websites referenced above are not under our control, and we cannot guarantee their accuracy.
Thanks, Karen! For more information on accounting, budgeting and financial planning, visit societyofgrownups.com.
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