While Kristen is away hugging orphans, we’re going to make her proud and get some work done. I’ll be the cool substitute teacher that lets you watch movies and chew gum if you do your work.
Ready?
If your personal and business finances are still together, it’s time to break them up!
This is one of the easiest ways to get organized and relieve stress or overwhelm in your business.
For most people, talking or thinking about money makes them cringe. We would rather pretend like it doesn’t exist and hope that it magically works itself out at the end of the year.
You did not start your business so you could be an expert on taxes, business expenses, and income streams.
You are an artist and you just want to do what you’re good at.
I get it. But finances aren’t going anywhere because you ignore them.
If you’re at a place in your business where you can afford to hire a bookkeeper, hire it out!
If you’re like most and doing it all on your own, I’m going to make it easy for you in these four steps.
Step One: Remember, you are NOT your business.
It’s not that I don’t love you, it’s just not working anymore.
You are not your business, so your business and personal money don’t belong in the same account.
Get your calendar and block out a two-hour window where you can head to the bank and open a business checking account and a business savings account (and a retirement account if you want brownie points. It’s really easy. I promise.).
You can also use an online bank depending on what you’re comfortable with and what’s best for your business. Research it.
You’ll need a few things (this varies state to state so double check before you go):
- Tax id number or Social Security number
- Proof that your business is registered
If for some reason you don’t have the required documentation, just open a regular account and treat it as your separate “business” account.
Step Two: List out recurring monthly/yearly business expenses.
Hey, I let you chew gum, so don’t go staring out the window during this part! If you had any monthly charges taken out of your personal account, switch them to your business account.
Anything business related should go in and out of your business checking account.
The only thing that should go into your personal account is your big, fat paychecks that will be transferred from your business account. Transfer any recurring expenses from being taken out of your personal account to being taken out of your business account.
That’s it! Tell me one thing you’re going to do today to help your business break up with your personal money in the comments, would you please?
Psst! Karie wrote a bio to include here, but I scratched it to include something personal. This woman, a Financial Freedom Coach, helped me to organize my personal finances (business? Easy! Personal? Um, there’s money in the bank so let’s spend it, woohoo!) in an incredibly short amount of time with supreme amounts of care and humor. Years of dragging my feet were cleared up in a few phone calls.
Karie Hill is amazing, which is why I recommend you go and download her free Woman’s Guide to Financial Freedom at Kariehill.com. You will heart heart heart her. And she’ll be back next Thursday, hooray!
My finances are already separated, but I am creating yearly budgets today!
Good! It’s so important to plan ahead when you’re an entrepreneur so I love hearing that you’re creating yearly budgets.
Great suggestions, Karie! As a small biz financial consultant and bookkeeper myself, I need to follow my own (and your) lead and do this. Of course, I had to wait until I had made enough money to have the minimum balance to open an account
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Oooh.. you’re a bookkeeper? I’m going to have to look you up. I’m always encouraging clients to hire a bookkeeper when they get to a place that they can afford one.
I’m really good at procrastinating, so I put off the bank thing for a long time, but once I did, it made book keeping soooo much easier!!
Rachel, the anticipation that’s the worst. The thought of having to go to the bank and open an account might be the most boring thing ever. It does make such a huge difference when you finally make the separation. Something kind of pro about it, too
I’m planning to set up 3 business bank accounts, two savings accounts and one checking account. My plan is to put the sales tax I collect from every purchase into one savings account, so it makes figuring up and paying sales tax easy! Then put 30% of every sale I make into another savings account in prep for when it comes time to pay income tax to the feds. And the other 70% of each sale goes into the checking account for the business, to spend on the cost of goods and for buying new equipment, etc, but I also need to funnel a portion of that money into my own personal account so I can make some money, too! Cuz where’s the fun in it if you don’t pay yourself!
Having a great plan…check!
Implementing the plan… *runs away* ..Ok, I PROMISE I’ll take care of that soon.
That’s a great idea.. no go get it done!
Look and see exactly how much you need a month for personal expenses. If you’re making enough in your biz, start transferring over a consistent amount either monthly or bi-weekly. Treat it as if you’re in a regular job collecting a paycheck.
I’m trying to get out of the thinking of “if you’re making enough money in your business” because how will we ever know when enough is? I’m fairly new and not making too much of any kind of money, but I’ve decided that I’ve got to pay myself SOMETHING, (actually learned it from a post here on brandcamp!) whether it be $20, $300, or $2,000 every 2 weeks. Because how will others respect me and my business (and how will I respect my business) if I don’t get paid?
So, I’ve promised myself that I’d go talk to an accountant and then I’ll get these bank accounts set up and (yay!) get myself paid! Let’s get ‘er done, Karie! We can do it!
Done, and done. Do you recommend opening multiple savings accounts if possible? That way you can squirrel money away for taxes in one, save up for new gear/samples/etc. in another and then maybe an emergency fund. Or is that even necessary?
Hi Katie!
I recommend having a business savings for tax purposes only and having a separate personal savings for your “emergency” account. If you want a third to save up for gear and other equipment, you can definitely do that. Just make sure it’s used for only business stuff so it’s easy to track when it comes to tax time.
What would you use an emergency account for? Not able to wrap my head around it, at the moment.
Oh, you could have an account for marketing! That’s such a scary word, isn’t it? I’m terrified, but I’ve been following The Joy of Marketing for a little while now and finally decided to sign up with them to work closer and figure out a great marketing strategy for me, as I tend to be lost in this area! I can’t believe how many changes the new year has brought, and a new outlook on my business! I’m excited over here!
Kristen – Emergency accounts are typically used in case your car breaks down, lose a job, washer or dryer decides to die, unexpected medical expenses.
I like to call it an “opportunity account” – Opportunity to explore unemployment, heal your body, fix up that car that gets you back and forth to work, .. you get the idea.
Marketing budget – The beautiful part about marketing today is it doesn’t have to be expensive. Social media is FREE and most customers are hanging there ready to find you and spend some cash
Thanks for the comment! Love that you’re so excited
Love you Karie!! =>
Thanks for the love, Sandy! xoxo
Karie, you are such an inspiration and your advice is always on point! Khaled and rolled up our sleeves and have started implementing your suggestions and we’re looking forward to a year of wise financial decisions and being debt-free before we know it! We’ve come so far but have quite a journey ahead of us!
Xoxo!
Mariana! One of my faves
Thanks for the comment. I can’t wait to hear about all of your success. Keep me posted.