Online Business Owner’s Guide to Small Business Finances

A business revolves around money. So whether or not you take care of your money in your business, can make or break your business. 

If you don't make money in your business, then you don't have a business. 

Now is the worst time to bury your head in the sand with your business finances. You need to have full control and knowledge about your business finances. 

So let's dive into your business finances with this complete guide. 

Keeping Track of Your Money

If you don't keep track of the money that you do have, then your money will be chaotic and messy and you won't even know how much money you do have, let alone what you've spent on things you most likely don't even need. 

The money you need to track is both the money that comes in and the money that goes out. 

Don't be that business owner that only tracks the money coming in, seeing that there is money in your bank account and spending that money. 

Part of owning a business means you need to do your own business bookkeeping (or hire someone outside of your company to do it for you). Bookkeeping is really just a fancy word for taking care of your finances in your business. 

What is Bookkeeping?

Bookkeeping is how you keep track of your business finances as things happen in your business. 

In your bookkeeping reports, you will see everything that is going on in your business. Each individual transaction will be sorted into the proper account in your bookkeeping program. These accounts will cover your business deductions

When you do your bookkeeping, it includes things like categorizing your expenses for the past month, so you really know what you spent your money on. 

Bookkeeping also includes paying yourself, your employees and your contractors. 

It includes reconciling your bank accounts and credit cards. 

And it includes most business owners' favorite thing, seeing how much money you made in your business. 

You can use a spreadsheet to track your business bookkeeping. Or you can use a program like Freshbooks or Quickbooks to track your business bookkeeping. 

Why Do You Need to Do Bookkeeping?

If you want to do get credit for your business expenses on your tax return at the end of the year, thereby reducing your taxable income, then you need to do your bookkeeping. And you should be doing your bookkeeping on a regular basis

If you want to have easily searchable records, then you need to do your bookkeeping. 

If you want to know how much you spent on something this year (or even last year or the year before), then you need to do your bookkeeping. 

Bookkeeping is an ongoing process that always needs to be done. It helps you sort through all of your financial transactions that happen in your business every day. 

Bookkeeping also allows you to easily see a snapshot picture of exactly how your business is doing at any moment in time. You can see exactly how much money you've made and how much money you spent. 

How Often Do You Need to Do Bookkeeping?

Ideally, you would do your bookkeeping every day. But I know that's not feasible for everyone. I do teach you a way to get your business bookkeeping done in about 5 minutes a day though. 

At the bare minimum, your business bookkeeping should be done monthly. 

But you will have much better results in your business, plus know exactly where your money is going, if you do your bookkeeping on a weekly or even daily basis. 

I full heartedly recommend that you do your bookkeeping on a daily basis. This way you are checking on your money every day and making sure that there are no transactions happening that you did not authorize. This is even more important when multiple people have access to your bank account.

Plus you will regularly know how much money you are bringing into your business on a daily basis too, as well as how much you are spending.

Knowing the actual numbers in your business is crucial to business success. Many business owners guesstimate how much money they are really making and spending in their business. Then they are very surprised when their bookkeeping is done and they look at the numbers and see the drastic differences that arise between the actual numbers and their guesstimates. 

Bookkeeping gets much harder the longer amount of time you leave between sitting down and crunching your numbers. 

I get it, you don't like numbers. Or spreadsheets. Or putting numbers into spreadsheets. 

But you are a business owner now and you need to be able to keep track of your business money on a regular basis. So either learn to like doing your business bookkeeping, hire someone to do it for you, or suffer through doing it. 

You still need to do it on a regular basis, no matter how much you despise it. 

The longer amount of time you leave between getting your bookkeeping done, the harder it is to remember what each transaction was for. 

Not all transactions come through on your bank statement telling you exactly what they are for. So unless you have a really good memory and know exactly what that $67.52 purchase was last month that shows up on your bank statement as **Mer Mat POS** stands for, then you need to do your bookkeeping on a regular basis. 

I have a really good memory and there are even transactions that I forget what they are momentarily simply because of the way they come through the bank account. 

Can I Hire Someone to Do my Bookkeeping?

You most certainly can. 

But you should still know how to do your bookkeeping yourself, as well as how to read your financial statements.

Make sure you do your research and look into the bookkeeper you do hire. Don't hire someone just because they are cheap. You will most likely get cheap results and the bare minimum work done if you hire someone who is cheap. 

And obviously this doesn't really help your business, because at tax time, you are going to have pay even more money (and time) to get your business bookkeeping fixed. 

You want a bookkeeper who is going to be there for you and support you in reaching your business goals. You want a bookkeeper who is going to answer your questions when you have them. 

How do I know When I'm Ready to Hire a Bookkeeper?

There are number of ways to know if you are really ready to hire a bookkeeper for your business. 

  • If you really keep putting off doing your bookkeeping because you really don't know if you are doing it right, you are ready to hire a bookkeeper. 
  • If doing your bookkeeping isn't worth your time to do, you can spend your valuable time making more money than what you are being charged to have your bookkeeping done for you, then you are ready to hire a bookkeeper. 
  • If you can afford to hire a bookkeeper for your business, then you are ready to hire a bookkeeper. 
  • If you aren't doing your bookkeeping or just keep putting it off for months and months, then you are ready to hire a bookkeeper. 
  • You honestly hate taking the time to do your own bookkeeping, then you are ready to hire a bookkeeper.

Hiring a bookkeeper means you need to find someone you trust with your business finances. You do not want to hire someone who is cheap just because you don't want to put out the money. 

You also want to make sure that you hire a bookkeeper who can help you understand your business finances and who will do your bookkeeping properly. There are a lot of bookkeepers out there who do not know how to do bookkeeping properly, they just see it as another way to make money because they do it for themselves, so why not do it for others too?!

You also want to make sure you hire a bookkeeper who understands online business. There is a still a huge gap in the accounting market because there are so many accountants who do not fully understand what online businesses are and how they operate. I can't even begin to tell you how many clients I have had come to me because their accountant that they've been working with didn't understand online business and they were classifying their expenses in the wrong accounts. 

You really want to hire a bookkeeper who is going to be there for you, who can answer your questions, understand what is going on in your business and help you reach your goals in your business. 

But if your business is really just getting on it's feet, you can't budget the extra money it costs to hire a bookkeeper, then you really shouldn't hire one. 

You can still find ways to get the support and answers you need for your business finances by finding references and accountants so that you know you are doing everything correctly in your business even if you are not ready to hire a bookkeeper. 

Whether you are ready or not to hire a bookkeeper, make sure you are doing your bookkeeping on a regular basis and looking at both your income and expenses on a monthly basis. 

What Bookkeeping Programs are Available to Me?

There are quite a few programs out there that are available to help you with your business bookkeeping. 

You can use a spreadsheet to keep track of your finances. I'm a spreadsheet nerd, so I still use a spreadsheet to keep track of my business finances on a daily basis, but I also use Quickbooks to keep everything neat and tidy as well. 

Or you can invest in the fancy programs like Quickbooks, Freshbooks, Xero, or any of the others that are out there. 

It really depends on how many transactions you have in your business, whether I would recommend you use a spreadsheet over one of the fancy programs. 

There are some free programs out there, but I don't recommend them. You want a program that is going to work for you and not be glitchy or lose your information. This can definitely happen with the free programs and I have never heard of it happening with the paid bookkeeping programs. 

If you really want free, then use a spreadsheet. Otherwise, invest the money to have a bookkeeping program. 

When Do I Need to Start Doing My Bookkeeping?

As soon as you start your business. 

True, you may not make a lot of money in the beginning. But you will be spending money. And you need to keep track of everything you spend, as well as make, for your business bookkeeping. 

Plus, since you aren't really making much money, but you are spending it, you are putting money into the business as the owner. And this also needs to be tracked. 

It is much easier to do your bookkeeping as you go along than to wait until it's time to file your tax return and have to do a year's worth of bookkeeping all at once. 

Waiting until the end of the year to do your bookkeeping is so much more headache than it's worth. You will miss expenses this way. You'll forget what things on your bank statement mean. And you'll rush and do a half-ass job that will just make you even more stressed than tax time already does. 

What About Taxes?

All businesses have to pay taxes. There are two types of important taxes to pay, and depending on where you live, you may have other taxes as well. 

It is the law to pay taxes and tax evasion is a crime that is punishable with jail time and fines. Make sure you know what taxes you are responsible for in your business and that you are remitting them to the proper governments on a regular basis. 

Do the research yourself, whether you sit down with a local accountant or use your trusty google skills. You can find the basic information that you need on blogs like this, but we have to give you the general information because until we sit down with you and go over the details of your business, we don't know your exact situation. 

Finally take your taxes from frustration, chaos and confusion to calm and organized.

Learn everything you need to know to  master your business finances and taxes explained in plain English. 

Employment Taxes

Employment taxes are the taxes that you pay when you work, these include Social Security, Medicare and federal and state income tax. When you work for someone else, they are automatically taken out of your paycheck. 

When you work for yourself, you are responsible for paying them. They are normally paid through quarterly estimated tax payments. 

When you work for someone else, the employer pays half of your social security and medicare, when you are self-employed, you are responsible for paying both the employee and employer portions, as well as your federal and state income taxes and even local taxes, if you have them. 

But one thing you do have to your advantage when you own your business is that you are taxed on your profits (revenue less expenses) instead of your gross income. When you work for someone else you are taxed on your gross income.  

Sales Taxes

Sales taxes are what you collect from your consumers for goods they buy from you. You can read more about sales tax in this ultimate guide to sales tax for online business owners

These taxes do not come from your own pocket, unless you refuse to collect them. You are simply an agent for you state when you collect and remit sales tax because the ultimate consumer is the person who pays the sales tax. 

With so many more businesses operating online, government entities are getting smarter and changing their laws and regulations. It is your responsibility as a business owner to keep up the changing laws and regulations. 

Other Taxes

Depending on where you live and the type of business you operate, your business may be responsible for other taxes as well. 

Make sure you do your research, and also reach out to a local accountant to make sure you are paying all of the right taxes for your business. 

Every situation is different and no two businesses are the same. So you need to make sure you get information about the taxes related to your business directly. 

What is the Difference Between an Accountant and a Bookkeeper?

Sometimes there can be no difference between the two because an accountant can be a bookkeeper. I'm a perfect example of this.

Other times, there are major differences. There are a lot of bookkeepers out there who do not have formal education in accounting. They found that bookkeeping was something they seemed to be good at for themselves, so they made it a service that they could offer to clients to make money. 

Based on my personal research, most of these bookkeepers do not have the accounting education. Some of them are still good at what they do, but that is where your research comes in handy. 

Accountants will prepare your tax returns and answer your tax related questions. They are sometimes CPAs, but a CPA license is not required to be an accountant. They can also represent you in front of the IRS should you get audited. 

Bookkeepers cannot represent you in front of the IRS. 

A bookkeeper is someone you should have on your team all year round. While you do have an accountant on your team all year round, you really only need to talk to your accountant on either a quarterly or yearly basis, depending on what your accountant does for you that your bookkeeper does not. 

Separating Your Personal and Business Bank Accounts

When you start your own business, you should also open up a separate bank account just for your business. All business transactions should go through your business account.

Your personal transactions should never go through your business bank account. That is why you pay yourself from your business. This is just bad business practice to make your personal purchases from your business account. 

Paying Yourself on a Schedule

You should always pay yourself in your business. I mean, that is why you started your business in the first place right? You wanted to make an income to provide for your bills to be paid. 

You need to set up a specific schedule to pay yourself. It doesn't matter if you pay yourself once a week or once a month or even on some other schedule. 

But the schedule needs to be consistent. 

This article goes much more in depth about paying yourself properly in your business. 

Besides being more stressed about money, not keeping track of your business finances, not doing your bookkeeping, and not doing your research on your own tax situation, can actually be the difference between you making a nice chunk of change in your business and scrambling to pay the bills or you knowing how much money you easily made and spent. 

Your business finances are one of the most important things that you need to keep track of in your business, otherwise you don't really have a business. 

Where are you the most stuck when it comes to your business finances?

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