LET’S TALK MONEY.
🎉 It’s April! Happy Financial Literacy Month!!!
Let’s talk about the thing no one likes talking about, but is pretty much the reason we’re all in business: Money.
When my husband and I started our first business, I had no clue what the hell I was doing when it came to money (or anything else frankly). I would just see money, spend it and hope for the best! Hey it wasn’t my fault, I tried to Google all of the questions I had, but I never got a straight answer and I was honestly afraid to call a big scary accountant. Then tax time rolled around… uh oh.
Time went on and we cleaned up our act. Our personal finances were a hot mess back then, not to mention our business finances. When we finally decided to get on top of the personal, the business was the natural next step. And you know what? Life is much less chaotic 😌.
Instead of telling you horror stories of my own stupidity, I’d just like to open the conversation about a few big things small business owners always ask about.
If you have a business-money question, please reach out! I may not know the answer, but I can help you figure it out. Let’s get to it.
Before we get down to business, at the very least, please make sure to have a separate business bank account. Don’t have one? Stop reading and do that first. Like, now. Also, I am not an accountant, bookkeeper or anything of the sort. Please reach out to a pro - they actually know what they’re talking about.
📍Do I need Quickbooks?
Maybe. But maybe not. If you’re stressing because you don’t have a big, fancy accounting software, fret not! Honestly, sometimes software like Quickbooks, Xero, Zoho, etc. are much more complex than you need. You’ll end up with questions you didn’t know you had and the learning curve and discipline of actually “doing the books” becomes dizzying 😵💫.
If you’re not managing multiple sales channels, putting together tons of purchase orders and don’t have multiple business bank accounts.. you may not need special software. Of course, if you love learning new software and love to pull up diverse reports - have at it!
If you’re pretty basic, money-in/ money-out you can certainly get by with a basic spreadsheet or notebook. Your business bank account is pretty much a living and breathing P&L statement! But if you make cash purchases/ sales and have expenses outside of your business checking account, you can handle it simply like this:
Log every transaction as it happens (or batch it weekly, just be consistent). Your running balance at a glance can tell if you if you can get that new office chair you’ve been eyeing or if you should keep sitting on the beanbag chair.
Seriously, it’s that simple. Your accountant will not care if you keep your books this way.
📍How do I know if I made money this month?
Please please please for the love of cats, do not feel “stupid” if you’re asking this question. You may be surprised that TONS of small businesses have no idea if they’re profitable until tax time. But you should know, and you can! If you’re not using the aforementioned boutique software (and honestly, even if you are it’s hard to know how to read it). Here’s the simplest, most basic way to keep track. It’s similar to above.
A P&L sounds intimidating. It isn't. At the small business stage, it really comes down to this:
Revenue (all the money coming in) minus Expenses (all the money going out) equals Net Profit (what's left 🤞🏻 hopefully something positive)
📍How do I actually pay myself?
Here’s another one that is never clear (to me, at least. I can’t tell you how many hours I spent Googling this in the beginning). This seems to be the thing they should tell you immediately after you say “I’m starting a business!”… but they don’t. Maybe because it’s not that complicated and it feels like it should be.
Once you have a business checking account and a personal checking account (separate) then you’re ready to pay yourself!
Sole-proprietor or Single-Member LLC: You take what’s called an owner’s draw. You simply transfer the money from your business bank account to your personal account. That’s it! You’ve got money! It feels weird, because you feel like you “should be doing more”. Just remember that with no paycheck, there’s no withholding, but (and this is a big but) you will owe self-employment taxes on that income. Every time you transfer money to yourself, set aside 25-30% for taxes. This seems like a high number, but that’s what it is. If you don’t do this, you may cry at tax time (ask me how I know 😭😭).
S-Corp: You're required to pay yourself a "reasonable salary" through payroll. This gets more complex and is worth talking to your accountant if you're at the stage where you have an S-Corp.
The general rule of thumb: pay yourself something consistent, even if it’s a super small amount. It’s a fantastic habit to get into, you’ll feel good that you’re making money and if there’s no money to take, it will keep you honest with yourself about whether you’re profitable and where to go or grow from there.
📚 One of my all time favorite business books is Profit First by Mike Michalowicz - It makes so much sense, is an easy read and Mike is a truly great human who loves helping entrepreneurs.
📍Should I take a loan out for my business?
I have an unpopular opinion here: You probably don’t need a loan right now.
I know, I know, there’s so much that you could do with an injection of money! But when you’re just starting out (or even if you’re further along) many times all this does is add another layer of stress and scarcity to your life. Being scrappy is way underrated. Constraints force you to get creative and being lean is how you learn what your business needs rather than just what you want. I find it truly fun to find ways to save and be frugal… OK cheap 🤷🏼♀️.
If you’re at a stage where you feel you must borrow, please work with a trusted advisor or mentor (SCORE.org has free mentoring as do many local organizations). Working with a person that sells loans for a living will likely tell you it’s a good idea, even if there are better options.
My personal and business values are: We do not borrow money. Could we grow faster? Maybe, maybe not. But we know that every single dollar of profit is ours. And let me tell you, during slow times (or Covid times) we sail right along without the debt ball n’ chain around our ankle. We grow at the speed of cash. It’s not glamorous, people don’t agree with it, but it’s worked and we sleep well at night. That being said, if you borrow money, we can absolutely still be friends 🙌🏻 I’m not here to tell you how to run your business - you know your business better than anyone else!
💡final thoughts
You're in business to make money. Money isn’t everything of course, you should be in business to serve the greater good! But money is a fantastic tool to help you serve as many people as possible.
Business finance doesn’t have to be scary. Do a budget, keep track of expenses, pay yourself 🎉 You’ve earned it!!
If you ever have a question or just need a business buddy to talk with about “money stuff”, I hope you’ll reach out. No judgement here, if there’s a dumb thing to do with money, I’ve done it (or am doing it!). Two heads are better than one, so please email me any time.
Sending you so many high-fives 🙌🏻 I believe in you and your Small Business Dreams!