Knowing and understanding the finances of your business is probably the most important part of being an entrepreneur! I know it feels complicated and frustrating most of the time. It is an easy thing to sweep under the rug until tax time, but you need to know where your business stands, so you can plan appropriately for the future.
As the owner of your business, it is your responsibility to understand your finances. Plain and simple. You can get help from a bookkeeper or accountant, but you still need to have a basic understanding of it because it is YOUR business. Your livelihood depends on it, after all.
Understanding your finances can be as simple as knowing what money is coming in (income) and what money is going out (expenses).
If you’d like to take it a step further, you can track different streams of income (sale of original artwork, reproductions, commissions, teaching, etc) and categorize your expenses (materials + supplies, travel, postage, etc). By tracking your finances in more detail, you will be able to analyze the information in greater depth to more fully understand how money is moving in and out of your business. You may also learn that one income stream doesn’t bring IN very much money, but it does COST a lot – that is something you might consider changing or getting rid of entirely.
There are three things you can do right now to set yourself up for financial success.
#1 Set up (at least) one bank account specifically for your business – there should be no personal money coming in or going out of this account. With a dedicated business account, you can more easily track where your money is going.
#2 Create a system for organizing, tracking, and keeping your receipts…for every single expense. You can use an Xcel spreadsheet or other accounting software for this. [Tax tip: you must keep receipts for 3 years, in case of an IRS audit]
#3 Schedule time each week or month, whatever makes sense for you, to input your receipts and income into that system (i.e. every 10th and 25th; save electronic receipts and enter all receipts, invoices, and orders into the system). Batching these tasks will save you time in the short term and save you stress in the long term (aka when tax season rolls around).
Start with these three easy steps. You can dive deeper into the finances as your business grows. Making big, business-altering decisions will be much easier when you have the full picture.
P.S. If you aren’t doing so already, please start paying yourself. Even if it’s just a small amount at first. You are the most important part of your business and you need to be paid for your time.
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