Starting your own business is overwhelming to say the least. There’s always something new to learn and a mile-long to-do list that you’ll probably never finish.
Even though it can feel really intimidating, ignoring your business finances isn’t an option. If you want to avoid getting in trouble with the IRS, and possibly paying big interest or fines, you’ve got to organize your business finances.
9 Steps to Organize Your Business Finances
1. Separate Your Personal and Business Finances
Most business entities, like LLCs, are required to separate their business and personal finances. If you’re a sole proprietor, it’s not required but it is a good idea to get into the habit as soon as possible.
Keeping your finances separate actually makes your life much easier when it comes to documentation and taxes.
I’ve been using Novo for free business banking since 2021. My favorite feature is “Reserves.” It’s like having a bunch of tiny savings accounts inside of my checking account (but without actually needing extra accounts). I can set aside money for taxes, my paycheck, big purchases like website hosting, or anything else I want to save for in advance.
If you’re a fan of Mike Michalowicz’s “Profit First” (which I highly recommend reading) then Novo might be the perfect bank for your business!
2. Create a Business Budget
Having a budget, for yourself or your business, helps you make a plan, stop overspending, and achieve your goals. After all, you started a business to make money not to spend it.
Keep a list of all your recurring expenses like software or memberships you pay for each month or year. This will help you become more aware of what you’re spending to run your business. It also helps you keep track of when you’re going to be billed again in case you want to cancel or upgrade.
I use AirTable to keep track of all my recurring expenses and when they are due. You could also use a spreadsheet to track your expenses.
For my budget, I use YNAB (You Need a Budget). I’ve tried other tools like Mint in the past, but it was too hands-off and I would forget to check it. YNAB is the perfect combination of automatic and manual budgeting. It saves me a ton of time but I also have to go in and check on things each week. YNAB allows you to have multiple budgets in the same account, so I have a personal budget and a business budget.
3. Set Up Finance Software or a Spreadsheet
All of your financial transactions should be recorded in the same place. Most people use software for this like QuickBooks, FreshBooks, or Wave. You can also use a spreadsheet, especially if you are just starting out.
Get the Business Finance Tracker Google Sheet!
4. Track Your Income
Anytime you collect money from a client, affiliate program, digital sale, or other income stream you need to make sure that transaction is recorded. If you don’t have a record of it, you won’t be able to prove it for your taxes.
5. Track Your Expenses
Record every purchase as soon as possible including the date, description, amount, and expense category. Organizing your expenses by category as you go will save you time during tax season.
Here are some of the most common expense categories for online businesses:
- Ads + Marketing
- License + Permit
- Office Supplies
- Professional Fees
6. Save for and Pay Your Taxes
Set aside 20-30% of your taxable income each month in order to cover your tax payments. You may want to talk with an accountant to determine the exact amount you’ll need to pay.
Don’t forget that you may need to pay state and local taxes as well as federal taxes.
7. Stay Organized with Apps
Even though most financial records for online businesses will be digital, there are times when you might need to keep track of something outside of your computer. When you need to digitize something, try an app!
Apps are great for tracking things like meal receipts and mileage driven for business purposes.
Here are a few popular choices:
8. Reconcile, Review, and Archive
At the end of each month, check your numbers. Make sure that all of your income and expenses have been recorded accurately and completely.
Review your income and expenses to see how you did for the month. Don’t beat yourself if it wasn’t what you hoped it would be. Just resolve to do better next month.
Also, take a look through your expenses. Were they worth the money you spent on them? Did you really need to spend that money? Keep this in mind as you make decisions for your business in the future.
Export files from your payment processors or other software and archive them. Check places like PayPal, Stripe, HoneyBook, ThriveCart, or any other program you’re using for financial transactions. Update the file name to something searchable like “PayPal Transactions [Month Year]” and save them in a folder in Google Drive.
9. Set Up Recurring Tasks on Your Calendar
- Monthly Reconciliation - During the first week of the month, you need to reconcile, review, and archive your transactions for the previous month.
- Quarterly Estimated Taxes - I create one task for each due date in a single year. Then I set each of those 4 due dates to recur yearly.
- Annual Taxes - Create 1 task to prepare your taxes in advance and one task as a reminder for the due date.
Now that you’ve learned how to organize your business finances, it’s time to take action to make it happen! Here’s a quick checklist for you:
- Set up a business bank account (Novo)
- Create a business budget (YNAB)
- Track your income and expenses (Business Finance Tracker)
- Try out some new finance apps on your phone
- Reconcile, Review, and Archive each month
- Add recurring tasks to your calendar so you don’t forget!
Disclaimer: The opinions expressed in this blog post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or business. It is only intended to provide education about organizing your small business finances.
The views reflected in this blog post are subject to change at any time without notice. Nothing in this post constitutes financial advice for any specific person or business. You should not use this information to make financial decisions, and I highly recommend you seek professional advice from someone who is licensed to provide financial advice.