Send Lynette a Confidential E-Mail
The most delightful time in the life of companies is usually the start-up phase, for founders. You’re filled with enthusiasm, a vision, and you’re thriving on an ongoing adrenaline high. These are heady days, which you’re likely to look back on fondly. Last week, I focused on asking questions to test the viability of your business idea. In the midst of commitment to your concept and a super-charged sprint toward revenue generation, you’ll want to consider these financial basics as a new entrepreneur.
Get help with money management before you make mistakes.
Here are five tips to set you on a firm financial path:
- Open a business checking account and a business savings account. Shop around to find the best local bank for your company. Don’t say, “I don’t have time for this.” You don’t have time to not consider your banking partnership carefully.
- As a baby enterprise, you want a bank or credit union with extremely low minimum balance requirements. Pay attention to all the fees and ask to have them thoroughly explained. If you don’t understand something, ask questions until you’re certain you do. It’s your money that you’re managing. You want to share as little as possible with a financial institution, when the same services are offered by a competitor for much lower rates or free.
- If you’re funding the business with your personal money, write up a simple document that says you’re loaning your business money. Do it every time you add personal funds to your company. Yes, every time. When you pay yourself back from business income, you won’t owe taxes on the money because you’ll be repaying loans to yourself just as you would to any lender.
- Always keep business and personal money separate. With easy-to-use accounting software such as QuickBooks, you don’t need to be an accounting expert to keep track of your income and expenses. However, if you know you won’t enter information in the computer software every day or two, while your awareness is fresh, you must get a simple cash book from an office supply store. Write down all the money that comes in and all that goes out. You can end up with way too many unnecessary problems if you screw up your financial records.
Keep all your receipts. Immediately write a description of the expense on the back of each one. Stick them all in a large envelope, by month. Keep track of all income and expenses in your cash book. Once a week or once a month, have a bookkeeper enter all your data into QuickBooks. Be certain the person is an expert on QuickBooks. Ask accountants, your bank, tax attorneys for references to QuickBooks proficient bookkeepers. The small amount of time required to keep everything in order can save you many hours and a lot of money later. In addition, you need to pay yourself a salary, deduct federal and state payroll taxes, and pay business taxes.
- Find a local CPA, who is familiar with businesses similar to yours. The assistance provided early – to organize your books – can save you many corrections later. Plan to have your accountant audit your business, beginning in the first year. After two years of audited financials, you’ll wield far more clout than most two-year old companies. The combination of positive cash flow, profits, and audited financial statements should enable your business to qualify for more credit than most two-year old businesses. And it should eliminate your need to personally guarantee most loans.
Understand the necessary steps to establish business credit.
Many people try to make business credit seem complex. Especially companies that want you to pay them to do what you can easily do yourself. Business credit is far simpler than personal credit, as you’ll see in this series, How to Build Awesome Business Credit plus updates in, Why You Don’t Need Intermediaries to Build Business Credit.
Combine the information from those columns with Denise O’Berry’s user-friendly approach to cash flow in her helpful book, Small Business Cash Flow, to develop a toolset you can use to establish a solid financial foundation for your new company.
Starting a new business is fun. Succeeding financially validates the work you expend to launch and lead your company. And maintaining organized, up-to-date records establishes a professionalism that reflects pride in your enterprise.