Organizing your finances is hard enough. When you’re a small business owner it can be even more complicated since you also have to account for the cash flows of your business.
Simplifying, organizing, and tracking your business cash flow is essential so you can pay yourself for your hard work. Assuming you don’t need to reinvest in your business, you should be paying yourself to supplement your lifestyle, and invest for financial freedom outside of your business.
Separating Personal and Business Expenses
Do you have an established business entity such as an LLC, Partnership, or S-Corp? If so, you should at a minimum have a separate business checking and business credit card. This will make it easy for keeping personal and business transactions separate and will also help to build business credit.
If you don’t have an established business entity for liability purposes, it’s still important to have a way of tracking business expenses. Using something like QuickBooks Self-Employed can allow you to easily build out rules for classifying business versus personal transactions, even if they’re both on a personal credit card or checking account.
Why You Need to Track Business Cash Flow
Assuming your business is your primary source of income, you need to be able to pay yourself so you can live the way you want to AND invest for YOUR financial freedom. Your business may or may not have a market value if you were to sell. Either way, relying on potential equity from the sale of your business should not be the foundation of your financial plan.
As important as paying yourself is paying the IRS. Again, using something like QuickBooks Self-Employed makes it easy for projecting quarterly estimated tax payments. You want to make sure you’re on top of this as you could face potential penalties for underpayment.
Your Business and Personal Financial Health are Connected
The financial health of your business will ultimately determine the health of your finances. Make sure you’re extracting your fair share from your business and paying yourself enough to build something outside of your business.