For small business owners, there are many different challenges that come with managing finances during the startup phase. However, there are different ways owners can give their small businesses a financial checkup by modifying their operations processes.
While business owners may be concerned with bigger issues right now, such as picking the Best small business insurance or navigating Small business loans following the fallout of COVID-19, simple day-to-day tasks can be done in order to guide a small business to a progressive future.
These tips are practical and can help small business owners manage their finances effectively.
Mixing Business with Personal
There are so many different reasons why small business owners shouldn’t get their personal and business accounts mixed up, including tax issues, accounting records mishaps, and personal liability. A common yet ill-advised move that some small business owners make is to secure their business finances with personal funds because it will end up creating a mess later on.
The best thing for small business owners to do in separating their expenses is to set a personal budget and a separate business budget. From there, these budgets should be strictly followed so that credit cards and loans aren’t used for personal finances. This will help to limit confusion and stress, especially when working with an accountant come tax time.
Negotiate with Vendors
Working with third-party vendors can present a number of opportunities to make deals and build stronger business relationships. Sometimes, small business owners have to be responsible enough to open up a conversation around discounts. When making purchases from vendors or suppliers, business owners of most successful small businesses should try negotiating for a better bargain and not forget to look at purchase terms thoroughly, such as late payment penalties and grace periods. When it comes down to it, every little bit counts when looking to save money.
How Do You Pay Yourself When You Own Your Own Business?
One topic that comes up for small business owners, especially if it’s their first business endeavor, is how they go about paying themselves. Small business owners still need to get paid, but how does that work?
Here’s a step-by-step look:
- Payment Methods: This all depends on a few variables, such as your entity type, business plan, and years in business. First, there’s the Owner’s Draw method, which is how most small business owners pay themselves. The IRS looks at owners of LLCs and partnerships as self-employed and as result, they aren’t paid through regular wages. Taxes aren’t taken out when pay comes in; instead, the owner has to pay them all at once when tax season rolls around.
Then, there’s salary, which is set and taxed by the state and federal governments. The IRS will expect business owners to take a salary if they are involved in the daily operations.
- Amount Selection: The next step is calculating how much to pay yourself. Make sure to pay yourself the amount that ties to your duties as the owner and also helps your business with long-term success. Also make sure to keep in mind factors such as expenses, like rent, paying staff, and utilities.
- Payroll Scheduling: If your business has at least one employee, you need to determine how often you want to be paid. Most popular choices, especially for LLC’s, are either every other week or twice a month.
Taking Care of Business (Insurance)
Small business owners may still have plenty of questions on their mind, such as asking what is most important to small business owners? How about covering the business as a whole if something goes wrong?
This should be at the top of every small business owner’s mind; not to make them stress over the possible liabilities they face every day. Instead, it should be to help them plan for the worst, but expect the best.
So, what is the best small business insurance? How much does a 1 million dollar business insurance policy cost? All these questions are important to find answers to, but the important first step for most successful small businesses is to find an insurance plan that will not only be budget-friendly, but also effective in protecting from potential losses.
A business owners policy (BOP) should help protect your business interests against such variables as financial losses and covered perils, like theft, fire, wind, falling objects, and lightning. It’s always important for small business owners to look over their policy documents to understand which coverages are included and what perils are covered by an insurer.
Each coverage in a policy has a limit, which is the maximum amount an insurer will pay out for a covered claim. No matter the coverage type and limits, it’s important for small business owners to find the best policy that fits their needs and their budget, so be sure to factor in a certain amount in your finances every month to make sure you’re covered.
Pay Bills in Full and On Time
Just like personal finances and bills, small business owners shouldn’t miss out on paying their bills on time and in full. It’s important to continue to be responsible with due dates and payment amounts, especially when it comes to credit cards and loan payments as late fees can mount over time.
Business owners should be sure to set up reminders to make sure there are no bills that go unpaid- or see if automatic payments are a possibility. This will take all the work out of having to remember to pay on time. Avoiding late fees could be the difference between ending a fiscal cycle ahead of the curve or in the red.
While there are many more tips that can go with these, this is a good foundation-laying approach to being a well-rounded and financially responsible small business owner that is poised to be informed and successful.
About Byrnes Agency
At Byrnes Agency, we offer insurance solutions that can be tailored to meet your specific needs. Whether you’re looking for personal policies or commercial coverage, we have the right coverage for you. To learn more about our products, contact us today at one of our two locations.
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