Check out this article from Nerdwallet! Provided by Mountain America Credit Union.
Launching a small business can be a leap of faith. And while some things—changing consumer tastes, unexpected competition—are beyond your control, building a sound money management system is within your grasp and worth the effort to spare yourself headaches down the line.
Here are some tips for setting up finances for your small business:
- First things first
It’s a good idea to establish checking
and credit card
accounts for your business that are separate from your personal ones. Maintaining a wall between personal and business accounts makes it easier to track deductible expenses.
You have no choice in this regard if your business is structured as a corporation, because the business will be a separate legal entity. If you are running a sole proprietorship—which the Small Business Administration notes is the simplest and most common structure
used to start a business—it’s even more important to wall off your accounts.
The lack of a partition would make you personally liable for all of the business debts and obligations, which is a big enough incentive to keep track of revenues and expenses. Maintaining a separate set of business transactions also would be useful in case of an IRS audit.
- Choosing a business checking account
Before you talk to banks or credit unions, figure out what services you need. The things that matter when choosing a personal checking account won’t necessarily apply when choosing a business checking account.
- The type of business you have: Sole proprietorships and nonprofits might qualify for account perks such as fee waivers.
- Limits on cash deposits: There may be a cap on how much cash you can keep in the account and a small fee for handling cash in excess of the cap.
- Limits on transactions: There also may be a predetermined number of actions—deposits, checks, ACH transfers—allowed free of charge before you begin to incur fees.
Another consideration is the interest rate on a line of credit or business loan that you may need down the line. Borrowing is a common source of funding for small businesses, so choosing the right lender is key to minimizing costs.
Credit unions such as Mountain America tend to charge lower fees and interest rates
than traditional banks because they are not-for-profit institutions owned by their members.
- Establishing a payroll system
As the business owner, it’s up to you to decide on a pay period, typically monthly or bimonthly, and to choose a system for managing your payroll. Because accuracy is critical when it comes to your employees’ wages, it’s vital to select a reliable system. You may want to check with fellow business owners you trust regarding their experiences and recommendations.
Your options boil down to managing payroll in-house or outsourcing to a third party. Some financial institutions include payroll among their business offerings
, with tools and access to professionals who can help you with matters such as direct deposits and tax preparation.
The only constant in owning and running a small business is change; there’ll always be something new demanding your attention. If you can establish sound and efficient systems for your finances, just as you have for your operations, the more time and focus you will be able to devote to adapting and succeeding.
Peter Lewis, NerdWallet
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