In my earlier contribution, “The Secret to Financial Power”, I outlined the important things that we can set into motion for ourselves to take control of our money management routine, and ways to set up personal accounts in order to maximize cash flow.
Starting with the right mindset, creating a budget, automating cash flow and finding fun and creative ways to review your finances on a regular basis are just a few strategic steps toward becoming financially empowered.
So what does financial empowerment look like for an entrepreneur? Here are some key steps that every business owner should take to strengthen your business’s financial foundation.
- Decide on the right business structure.
A limited liability corporation (LLC) and an S Corporation are two very common business structures that many people decide to use when starting their businesses for the first time. How to structure your business is a very important first step because it will impact how you pay income taxes, Social Security, and Medicare taxes. The question, however, is which is right for you?
According to SBA.gov, an LLC is treated like a sole proprietor if the owner is one person and a partnership, if owned by two or more people. Taxes pass through an LLC and, instead, are reported on the owners’ tax return. The S Corporation income tax treatment is similar to that of an LLC but not identical, and there are distinct differences in the structure of each that you need to understand to help you make the right decision. Do your research and choose the business structure that meets your overall financial strategy.
- Separate Business Funds from Personal Funds
Separate your personal cash flow from what you put in and pay out from your business. This will help you to better track and manage the cash flow within your business, and make it easier for you when you’re ready to file your taxes. Even if the majority of your business funding is coming from your own personal accounts, create separate and distinct accounts for your business. If a bill needs to be paid, fund the account and then write a check from your business to cover the expense. If you need to pay yourself, do the same. It will also be a good strategy to automate as many of your business expenses as you can, in the same way you automate your personal finances.
- Plan for rainy days
Create reserve funds for your business, so that when unexpected expenses arise, as they so often do, you’re prepared to meet them with less anxiety than you would have if you were caught off guard and not prepared.
- Learn how to read a financial statement
Learning how to read your financial statement will have long standing benefits to you and the survival of your business. It acts as the blueprint for your growth plans and is the most important document that you’ll use to explain the strategy and strength of your business to investors.
Your balance sheet, income statements, and cash flow statements will show you if you’re on track to meeting your financial goals, and can drive your marketing strategy to help keep you in line with your plan. Ultimately, being able to effectively read your financial statement will position you to successfully manage your finances.
- Get help
There are many useful tools that entrepreneurs can use to help manage the finances for your business. For example, Mint.com, Freshbooks, and QuickBooks are online, cost-effective tools that help you better track business expenses and create a detailed financial statement. In addition, seek help from the right kinds of professionals, such as a good accountant and financial advisor who can verify that the numbers within your financial statement makes sense or help you structure the right general investment and retirement accounts for business owners.
The strength in your plan will only encourage confidence as you build your business, and this level of savvy will become evident to everyone you engage. Especially that golden account that you’ve been preparing yourself for from the day you opened your doors for business!