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Starting a new business can be overwhelming, but managing the money doesn’t have to be! Here are 6 tips for setting up the financial aspects in the right way.

1. Get a separate bank account.

Whether you’re a sole proprietor or have an LLC, partnership or C corporation, a separate bank account is a must. Separating your business funds from your personal funds is key for a few reasons: 1) it makes it easier to track your business expenses, 2) it helps show that your business is real and not just a hobby, which can be important for both legal and tax purposes and 3) it makes you look like a legitimate in the eyes of your customers and vendors, which can result in more favorable payment terms and repeat sales. 

At FNB Community Bank, we have three business checking account options.

1. Regular Business Checking
   • A straightforward account that accommodates growing businesses, with free services to help you manage your bottom line.
2. Free Small Business Checking
   
   • If you're in the process of launching your small business and need a free, basic account, look no further. Enjoy 100 free items a month.
3. Commercial "NOW" Checking
   • An interest bearing account that increases your bottom line. Get free convenience services like online banking and bill pay.

2. Track your revenues and expenses. 

It’s important to know the numbers in your business, and not just for tax time (although that’s a good reason!). Tracking your revenues and expenses has several benefits. First, gives you insight into the financial health of your business and helps you to identify problems and fix them before it’s too late. Second, you’ll need to know your numbers to calculate what you owe for quarterly estimated tax payments and on your tax return at the end of the year. Third, having your revenues and expenses readily available will help you identify opportunities to save money – for example, through additional tax deductions. Lastly, having your numbers easily accessible will allow you to make better decisions – for example, whether to spend money on a new expense or invest in a new revenue stream. 

While Excel can do the job when it comes to tracking your revenues and expenses, there are many affordable online accounting tools that make tracking these numbers easy. Find a tool that syncs with your bank account and credit card and is not only easy to set up but to use. Many tools offer the ability to invoice clients, pay employees and contractors and file and pay sales tax. There is no one-size-fits-all tool; the best accounting tool depends on your type of business and the stage you’re at, and most importantly, whether or not you will use it on a regular basis.

3. Track your receipts.

As a general rule, it’s a good idea to keep all of your receipts for business-related expenses. This will help you substantiate that expense if you’re ever audited by the tax authorities. Depending on the accounting tool you choose, it may have a built-in receipt tracker. If not, there are many options out there, including mobile apps, that will enable you to upload pictures of receipts directly from your phone or via email.

In addition to tracking your receipts, it’s a good idea to jot down a note on the receipt itself as a reminder of what the expense was for. This way, it’ll get entered correctly into your accounting system and again, you can show it was a valid expense if ever questioned.

Lastly, make sure you are actually tracking your business expenses. Even if the expense is small or you haven’t made money yet, it’s important to track what your business is spending. Not only will this help come tax time so that you can maximize your deductions, but you’ll want to have a good sense for what it costs you to run your business for budgeting purposes in the future.

4. Create a budget.

Most new business owners don’t have a budget for the first few years. This isn’t a surprise, as it’s hard to create a budget in those early days and the thought of budgeting usually makes people squirm. But a budget is a really important tool at all stages of your business. A budget not only allows the business owner to plan for expenses, it provides a roadmap outlining how the business will achieve its goals. 

Most business owners find that it’s hard to create a budget in the beginning. This is because there is no history of revenues and expenses to rely on, so the business owner is forced to make some assumptions and best guesses. The most important thing to remember here is that a business budget is not a final document; it is a living tool that changes as you gather information and to meet the needs of your business. The longer you are in business, the more data you have to refine the numbers in your budget.

Also, don’t just create a budget; it’s important to check in regularly (at least semi-monthly or monthly to start) to compare your “actual” numbers to those in your budget. Then, you and your team can make changes accordingly based on the differences between your budget and actual numbers. 

5. Set aside cash to pay your taxes.

For most business owners, the most stressful part of their business’ finances are taxes. Don’t be surprised come tax time; set aside a portion of cash received every month to pay your taxes. While the actual percentage needed will vary depending on your tax situation, setting aside 25-35% is a good start. 

Additionally, be aware if you are required to make quarterly estimated tax payments. These payments are based on your net taxable income for the prior quarter and your annual estimated taxable income, and are intended to ensure you are “fully paid in” to the tax authority by the time you file your annual return. If you fail to make quarterly tax payments or don’t pay in enough, you may be subject to penalties and interest at the end of the year.

6. Schedule time to check in on the money in your business.

Much like it’s important to check in with your budget on a regular basis, it’s also critical to check in on your numbers in general. Set up recurring time on your calendar to review the financial aspects of your business (ideally at least semi-monthly or monthly). This can include reviewing your income statement, your balance sheet (or your assets – cash, inventory, etc., and liabilities – credit cards, loans, etc.), following up on unpaid invoices and paying outstanding bills.

During this time, start looking for patterns and changes. Is your revenue increasing? Are your expenses going up? Try to understand why, and notice anything that looks inaccurate or does not align with your budget or what you would otherwise expect. The more often you check in with your numbers, the quicker you will identify issues and opportunities.

If you have additional questions about starting a business, getting a business loan, or understanding the finances of your business, our commercial banking team would love to help you!