This post is sponsored by Regions Bank, member of the FDIC. All opinions my own.
I’d be remiss if I didn’t say that owning a small business, is a wonderful and rewarding experience, but doesn’t come without trials! One of those aspects is budgeting. A small business is only as successful as the income it generates. And in my business, working often off commissions and as a contract employee, paychecks don’t come with regularity into my bank account. That’s why today I’m here to share 5 budget tips from a small business owner – tips I’ve learned in my eight plus years of running my own business.
Because I’m not a salaried employee, I don’t receive that regular paycheck every two weeks. Let me just say I wasn’t perfect at budgeting, and still am not, however with a lot of trial and error and learning from my mistakes, I’ve finally found budgeting tips that work for me.
As a small business owner, I’ve had to become regimented in putting away money, saving for taxes or potential ‘surprise’ expenses down the road and of course keeping track of all my monthly expenses and profit and loss statements. It can all sound daunting, but there are plenty of ways to set yourself up for money making success, even when your paychecks aren’t consistent.
I’ve teamed up with Regions Bank, member FDIC, whom you might remember from this helpful previous business post of mine – modernized banking for the small business owner, to share my 5 budget tips from a small business owner.
If you’re reading this and based locally, Regions Bank is continuing to open new branches within the Houston-area that feature the latest in banking technology. I had the opportunity to tour one of the new Regions branches in Houston and was impressed by the modern look and advanced technology available to their customers.
Instead of traditional teller lines, customers are welcomed by Regions Bankers for face-to-face assistance with all their branch-banking needs. Regions also has a 24-hour banking vestibule equipped with Video Banking ATMs and DepositSmart ATMs for their customers to use at their convenience.The new branch I visited was modern and welcoming, which could make the often-daunting task of discussing money much easier. If you want to find success in budgeting as a business owner, banking with an institution you can trust is the first step! If I was looking for a new bank right now, I would definitely consider Regions.
5 Budget Tips from a Small Business Owner
1. Open and operate out of personal and business bank accounts
Keeping my money separate has been a huge game changer as a small business owner. In addition to my personal bank account, I opened a business checking and savings account to keep everything separate. Because my business is an LLC, I was required to open a business banking account, however doing so has by default made me a better bookkeeper. My business expenses are reserved for the funds within my business bank account and nothing further!
2. Keep track of everything and save receipts
Let’s just say, I learned this the hard way when I was initially operating my business. I used to think I had a great system for keeping track of things – in my head, on random scraps of paper or in miscellaneous notebooks. However, when the time came around to give my accountant all my records for tax purposes, I was left scrambling.
I now live by my profit and loss statement (for me it’s simply an Excel spreadsheet I’ve created; automated programs don’t work for me), a filing system with concrete copies of all my invoices, tax documents and receipts, plus a digital filing system with secondary copies of my invoices and other important documents.
I also save every single receipt, from just a simple parking payment at a surface lot for a downtown shoot, to receipts for charitable donations I’ve made on behalf of my business. All these receipts are your friend. Especially if you were to have issues with the IRS down the road, your receipts offer concrete evidence of purchases and more.
3. Understand your monthly operating budget
It’s a simple formula to follow: revenue – expenses = profit. To break that down, revenue is the amount of money I bring in with paychecks, commissions, etc. When I have that number calculated then I will subtract the total number for my monthly expenses. This number will be my business profit, meaning the amount of money my business actually takes home each month.
Understanding my monthly operating budget is crucial to my business’ success. If there are months where my business might be slower versus others that are historically busy, I can budget for the slower months accordingly.
4. Put money away for taxes, monthly!
Another concept I didn’t initially come to grips with in my first few years as a business owner. However, a few years ago I had to write an IRS check for one lump sum of over $4,000. After that, I quickly realized that putting away money for taxes each month is crucial.
I follow a 30% savings method, meaning each paycheck I receive, I put 30% of it immediately into my business savings account for future tax purposes. Because I pay quarterly taxes, my accountant is able to give me an estimated quarterly tax amount, and I make sure I have at least 10% more than this amount in my savings account at all times.
Gone are the days of stressing out about writing one large check to the IRS. I’m able to have peace of mind, and the 30% pulled from each paycheck really isn’t that much in the grand scheme of things. I’ve also setup a monthly auto-draft from my checking into my savings, which adds a little more money into the savings pot.
5. Schedule out time each month to get organized
I wish I had followed this tip sooner! I used to scramble come tax time – getting together all the necessary documents including 1099 forms, finalizing my P+L statement, etc. Now I slot out time each month to complete these tasks, so I am ready come tax-time and year-end.
I use the last Thursday or Friday of the month, and segment out at least 2 hours, to get my receipts organized, work on my P+L statement and send out any invoice reminders for payments.