Like most business owners, you want to ensure your finances are in good shape. But making the right financial decisions can be tricky, especially when it comes to budgeting and forecasting.
Here are four common business financial mistakes and how to avoid them.
Not Keeping Personal and Business Finances Separate
This is a big no-no in the world of business. You need to keep your personal and business finances and budgets separate.
If you use your business money to pay your personal expenses, that money won’t be available if you need to make a business-related purchase.
It’s also a good idea to keep your business credit card, and personal credit cards separate, so you can track your business expenses separately from your personal expenses.
Save receipts from your business-related purchases, and try not to incur too much debt.
Not Keeping Accurate Records
You need to keep thorough records of your business finances.
Keep all receipts, invoices, and checks in a file, folder, or binder. This helps you stay organized and avoid mistakes, such as double-billing or recording an expense twice.
If you work with a bookkeeper or accountant, give them copies of everything they need to do their job.
Failing to Plan For Taxes
Business taxes can be far more complicated than personal taxes.
For instance, you can deduct more business expenses than personal expenses. Business deductions are based on a percentage of gross income, which makes it difficult to figure out how much you can
You also have to pay self-employment tax and income tax, which many people don’t realize. When you know what’s coming and how much you’ll owe, you can avoid any unpleasant surprises when it’s time to file your taxes.
Planning for your tax obligations can be tough, but sharpening your accounting skills could help you build a healthier business.
If you’re interested in learning more about business management, you can earn an accounting degree online and this might be a good way to go.
With this type of education, you have the flexibility to balance work and family life while still getting the business acumen you need to succeed.
Not Forming the Right Entity
Don’t forget to register as the correct entity for your business. Forming a limited liability company or LLC is a great way to secure several benefits, such as limited personal liability and tax advantages.
States have different regulations around LLC formation, so check the rules in your state before moving ahead. If you’d rather not do the hard work on your own, consider using a formation service.
These services can save you quite a bit of money on lawyer fees. Once you have your LLC set up, remember to keep track of all the important paperwork and look into purchasing business insurance for added protection.
In short, the most important thing you can do for your business’ finances is to keep learning.
By researching the right type of business entity for you and the types of taxes you need to prepare for, you’ll be well on your way to improving the financial health of your business.