Most people we know move gradually from side hustle to full time gig. It’s a great plan to be sure that you’re able to support yourself with your new business, but it can often lead to a bit of a messy overlap between personal and business funds. You may keep pushing off getting organized until “tomorrow” and let the task of figuring it out fall to the bottom of your to-do list. You end up losing money because of missing receipts and not planning for tax deadlines. Follow the four steps below to make getting organized easier, painless, and maybe even a little fun.
Step 1: Open a separate bank account for your business ASAP
Is this something that you legally need to do for your business? Maybe. Is this something that you financially need to do for your business? Absolutely.
Even if you’re starting out as a sole proprietor, which is the default structure for anyone who earns income from self-employment, you should set up a separate bank account. Why? Because even if that’s the only thing that you do to get your money organized, you’ll be miles ahead of everyone else in the organization game. You won’t need to sift through a bunch of personal transactions to find business deductions and you won’t lose precious time looking through all of those same personal transactions to see if your client has paid you.
Don’t overcomplicate your business or waste any more time looking at a hodgepodge of transactions, hoping that you’re not missing something. Take 15 minutes to set up a separate account and you’ll be one big step closer to organized money management (congratulations!).
Step 2: Create a list of deductions you can take
There are so many deductions you can take, but it's hard to catch everything. Create a list of things you can deduct to ensure you're not missing anything. Tape the list to a folder and store your receipts in there until you can get them entered into whatever bookkeeping system you use.
Everyone will have different expenses, but a good list to get started with is:
• web hosting
• vehicle mileage
• work travel
• courses, seminars, licensing, business related books
• shipping, packaging
• office supplies and equipment
• health insurance premiums
Step 3: Know what tax forms you need to file, and when
The first few months of starting a business will fly by and you’ll be left scrambling the night before filing deadlines if you don’t pay attention to some key forms and dates.
To get this this started, here is some basic information for sole proprietors:
• Who has to file: Generally, anyone who has net earnings from self-employment of $400 or more needs to report this income at the end of the year. And anyone who is expected to owe more than $1,000 in taxes at the end of the year needs to make quarterly estimated income tax payments.
• What form to file: Most people start their business as a sole proprietor, and the forms that you need to file at the end of the year are Schedule C or Schedule C-EZ (profit and loss from business) and Schedule SE (self employment tax).
• When to file quarterly estimated tax payments: If you’re rational, you would probably think these payments would be made quarterly. Well the IRS throws in just a little change-up, so your payments are actually due on an odd schedule. The non-quarterly, quarterly schedule that they’ve come up with is:
Jan 1 - March 31: estimated payment due by April 18th
April 1 - May 31: estimated payment due by June 15th
June 1 - August 31: estimated payment due by September 15th
September 1 - December 31: estimated payment due by January 16th
Step 4: Set a weekly money date
This won’t be your most fun date, but it’ll probably your most profitable. Set a time to check in every week and make sure that your money is on track. If you do this weekly, it’ll become so easy and quick. Once you have this done, you've earned a glass of wine and a great stress-free weekend. Some things to do weekly are:
• Send any invoices that are due
• Look at who hasn’t paid and send reminders (+ cash any checks!)
• Pay any outstanding bills
• Pay yourself weekly salary / stipend
Bonus step: Set up a bookkeeping system
Oh look at you, overachiever. You’ve got this organization thing down and you want a bonus step? You can feel even more legit and in control of your money by setting up an easy bookkeeping system. This doesn’t have to take a long time and it doesn’t need to cost a lot. There are a range of easy to use programs out there (some are even free!) that are better than that excel sheet you’re using. If you don’t need many bells and whistles, but are looking for something free, try Waveapp. It’s pretty simple to use, and it’s free.
Now, set aside 30 minutes a week to work through this list and start feeling in control of the business you are creating.
After all it's Tax Season.