It’s that time again! Time to pay your quarterly taxes!! If you are a small business owner then this time of year may add a little extra stress to your life, but that doesn’t have to be the case! Now that you are 3 months into the year its time to look at whether your system is working and, best case scenario, it may even be time to give yourself a raise! I just sat down to take a look at my numbers and the budget that I put into place in January and I had set a conservative monthly salary for myself which ended up being too conservative now that we are a few months in. Happy raise day to me!!! For the last post in this Spring Reset series I will give you a peak at my (simple) accounting system and the way that I manage the money that comes into my business! Its not fancy but it works for me! Here are a few tips for a financial reset that hopefully will be of help to you.
My basic financial refresh looked like this:
- Income tracking: Is my system working for tracking all of the money coming in from ALL sources on a monthly basis? My business is a fairly simple one so I am able to do this with a basic spreadsheet in Google drive. For me this includes tracking custom client work, mentor sessions and SC Stockshop sales. I made sure that there was nothing slipping through the cracks. While my system is fairly simple (and a bit archaic. haha) there are programs like Outright.com which can seamlessly track and manage income from a variety of sources all in one place.
- Tracking business expenses: Is my system working for tracking all of my business expenses? Am I entering and keeping necessary receipts or are things falling through the cracks. Am I accounting for ALL ongoing business costs (web hosting, subscriptions, reoccurring fees for software etc etc) as well as all one time purchases that should be claimed (props, equipment upgrades etc)? This is also fairly straightforward for my business so I keep track of this in the same Google Drive spreadsheet as my income. The important thing is that you have a system for making sure that EVERYTHING gets accounted for!
- Establishing a working business budget: The best part about doing this business finance reset was taking a look at my current working business budget and make sure that it is actually accurate and working for me! Again, I have a simple budget but it works for me! The biggest change that I made this year was that for the first time in 8 YEARS of owning a business, I started paying myself a set monthly salary. This was really scary since I am in a whole new line of photography work and am still figuring out what the financial ebb and flow will be! For this reason, I set my salary VERY low in January to be sure that it was an amount that was realistic. Now 3 months into the year I was able to reassess based on first quarter averages and was able to give myself a 150% raise!!!
Before I talk about my business budget I have to tell you the banking tool that makes it all possible. Capital One’s online banking system called Capital One 360 allows you to have as many individual savings accounts as you want for free. So I have my primary business checking account, where all income and expenses flow through, and then I have “separate” saving accounts (linked to my checking account) which are individually nick named according to my budget. So I have savings accounts with names like “taxes,” “childcare,” “props,” “business savings,” “tithing” etc. This helps me to make sure that I do not spend the money allotted for these line items in my budget and allows me to accumulate money in certain accounts from month to month. I could not operate my system without this helpful online banking tool and I think it was completely free to set up! I pay my salary monthly into a completely different account (to a completely different bank) with a completely different check card so that I know exactly how much I am making and there is no personal/business overlap in spending.
Within my basic monthly budget I set aside a predetermined amount for each of the following:
- Known monthly business costs: Regular monthly expenses
- Estimated additional business costs: Specifically I set aside a certain amount for props each month. If I use it all, great. If I don’t, any extra goes into a specific “props” account in Capital One 360 for future use
- Taxes: (I immediately set aside a conservative 20% of all income each month into another CO360 account to stock pile until taxes are due each quarter so that I am never scrambling to pull together that money at the last minute.)
- Tithe: It is my personal conviction to tithe a set amount to my local church that is at least 10% of the total gross amount of money that comes into my business (pretax). My business is only a success if God allows it to be a success and so I view all of the money as God’s anyway and I give back to him a portion as a way of worshipping and thanking him for his blessing and as a way of putting myself in a constant state of trust and dependence on him to sustain my business and my family.
- Salary I pay myself 50% of the remaining profit. Since I wanted this number to be a fixed reliable amount I calculated my average monthly income based on the past 4 months (or longer if you want) and then drop it a little bit lower to be conservative. For me with my particular budget and cost of doing business this ends up being about 25% of my average total monthly intake.
- Business Savings The remaining 50% of my total profit ends up going to business savings for new gear, workshops, general office needs and unforeseen business expenses. So I pay both myself and my business the same amount of predetermined money each month. There are a lot of gear upgrades that I need to make this year and so for now this amount is a little bit higher then it might be in the future.
I pay myself and my business one time at the beginning of the month with the money that came in last month. So I paid myself on April 1 for the month of April with the money that came in from March. My system is a fairly simple one and may not work for you. I am just not a Quickbooks kind of girl. I would have a pencil and an old school ledger if it were up to me! The important thing is that whatever you are doing, it needs to be actually working for you! This tax season is the perfect time to take a look at whether or not your current business budget and system is working the way that you wanted it to in January, so that at the end of the year you aren’t left wondering where all of that money went! I hope that this was helpful and inspired you to do a little spring cleaning of your business finances! You may even get a wake up call that your cost of doing business is simply too high and your salary too low for all of your hard work ;)
If you missed the first two parts of this series its not too late!
Spring Rest: Part 1 Office hours
Spring Reset: Part 2 Social Media
Have a beautiful day friends!