Important Financial Steps Before Starting Your Own Business
If you had a dollar for every time another business failed due to missteps in their business finances, you’d probably be able to fund your entire operation without worrying.
You don’t want to be one of those business owners with a company that slowly (or sometimes quickly) sinks because they lack a firm grip on their finances. And if you intertwine your business and personal finances, even more trouble can arise.
Money isn’t something to mess with, especially if you are a small business owner who doesn’t have a big chunk of change to spare. So here are some important financial steps you should consider and map out before starting your own business.
Choose Your Business Entity Type
Choosing your business entity type sets the stage for all of your financial decisions moving forward. This is step number one, and it’s a big deal. You need to decide whether you want to form a Limited Liability Company (LLC), S Corporation (S Corp), C Corporation (C Corp), or Nonprofit.
This will determine the type of financial protection you may have, as well as taxation details and associated filing fees. Keep in mind that you can choose an initial structure and then reevaluate at a later time if the needs of your business change.
Whatever entity type you choose, Incfile can help you set up your business quickly and cost-effectively.
Decide How You Want to Manage Your Finances
As an entrepreneur, you may already be a wizard with finances and might want to manage your accounting on your own, which is totally your prerogative. But if you’re not a numbers wizard, then recognize that you should employ a financial expert or hire a financial consultant and/or accountant.
When you decide whether to manage it yourself or hire an expert, you will then decide on an accounting system that works for your business. After that, decide whether your business should use cash or accrual accounting.
Keep Your Personal Finances Separate From Your Business
When it comes to finances, you want to do your best to keep your personal accounts and spending separate from those of your business. We have a lot to say on how to go about this on our Incfile blog. Here are some articles you can explore further:
- Why It’s Important to Keep Business & Personal Funds Separate
- Tips to Balancing Your Personal vs. Business Finances
- Why It Matters to Keep Your Personal Finances Separate From Business Finances
- THE Biggest Financial Mistake New Business Owners Make (and How to Avoid It)
Open Business Banking Accounts
You should open both a business checking account and a business savings account; having an entirely separate business banking system is important. You should also consider opening a business credit card. This will help you manage all of your business-related expenses, which you can use as deductions when filing for your taxes.
Don’t Forget to Pay Yourself
Last but not least, you need to establish guidelines on how you pay yourself as a small business owner. You are doing the hard work as the brain and heart of the organization, so you deserve a slice of the pie — and not a small one. You need to pay yourself enough so you’re not eating cereal every night for dinner, but not too much that your business checking account doesn’t have enough to cover that client coffee date. It’s a fine balance.