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Are you planning on opening up a new business? Then, you should read these financial tips. They’ll make your first year of operation much, much easier.
1. Don’t Mix Personal and Professional Finances
You should never rely on your personal savings and credit to keep your business afloat. It’s a bad idea for two reasons: it can sabotage your personal finances in the short term and hurt your business’s finances in the long term.
Short-Term Sabotage:
Relying on your personal finances for your business expenses can backfire in the short term. These extra expenses could eat up your savings and take up all of your available credit, leaving you vulnerable to any surprise expense that comes your way. What will you do if your car breaks down and needs a repair? What if your refrigerator stops working, and you need a replacement? You might not have enough to take care of this surprise right away.
If you’re ever in this tricky situation, you could look into an online loan as a solution. Check for loans that are specifically available in your state. So, if you live in Anchorage, you should look for loans in Alaska, and if you live in Portland, you should look for loans in Oregon. You don’t want to waste your time filling out an application for a loan that you can’t access in your state.
Long-Term Business Problems:
Mixing your personal and professional finances can make bookkeeping for your business a real challenge. You’ll have to collect every receipt and comb through every bank statement to determine which purchases were business-related and which ones weren’t. This can make tax season much more stressful than it needs to be.
When you have separate business bank accounts and credit cards, you can easily track and record every expenditure.
Another long-term problem that you could accidentally cause is poor business credit. Business credit cards help you build up your business credit score. Much like your consumer credit score, a high business credit score can be financially advantageous. It can increase your chances of getting approved for business loans. It can lead to better interest rates. It can even attract new vendors to your business.
2. Prepare for Tax Season
You don’t want to scramble when tax season comes around. So, prepare for tax season well ahead of time to keep the process stress-free. How do you prepare? Start by going to the IRS’s self-employed and small business tax center. This will give you essential information about business tax credits, employment taxes, forms and much more.
Another thing that you can do to prepare is start recordkeeping all of your expenses. Organize your print and digital receipts. Collect income statements and balance sheets. These records will help you file your federal income taxes when the time comes. They can also come in handy if you ever have the misfortune of getting audited.
3. Keep an Emergency Fund
You never know when something will go wrong. Maybe a piece of equipment breaks down or there’s a sudden drop in cash flow. You will want to have an emergency fund to resolve the problem and get back to business.
Even if you have signed up for insurance plans to protect yourself from disasters, it still takes time for insurance claims to go through. You can rely on your emergency fund to make essential payments while waiting for the insurance company to process your claims.
These financial tips will help you avoid all sorts of financial obstacles in your first year of business and set you up for success.
