For many entrepreneurs, especially the more creative types, worrying about taxes, financial statements and numbers in general is the least attractive aspect of owning your own business. Thank God for accountants who actually enjoy that sort of thing! This week, Becca's husband Patrick, a Certified Public Accountant and Financial Controller (and our fave numbers guru), is writing in to share his tips for small businesses from an accounting perspective.
1. Don't forget - you have to pay taxes. For owners of many different types of businesses, it can be easy to lose track of the fact that your earnings coming in are tax free. Remember that you need to pay state and federal income tax and Social Security and Medicare Tax on your income. Depending on how much you're making and if you have another day job (that you receive a W-2 from) you may need to pay quarterly taxes to ensure you're withholding enough. If you aren't, you may be assessed a penalty come April. Make sure you're setting aside an amount from each project/job to pay for your taxes. To give you an idea, Peanut Butter Creative sets aside 30% (25% for taxes and 5% for additional savings) but the amount that makes sense for you could be higher or lower depending on your other income streams.
Gorgeous calendar from Rifle Paper Co.
2. Update your books throughout the year. PBC uses Quickbooks Online but there are other software systems that can help you stay on top of your income and expenses, too. Make sure you're mapping your transactions regularly (meaning you should be classifying the transactions your software pulls from your bank account by type - meals/entertainment, advertising, etc.), keep your receipts organized, track your mileage regularly, etc. Developing the habit of keeping up with these items will allow you to see the big picture and put you in a place to make strategic decisions for your business.
3. Do your best to learn about accounting and finance terms and situations. As an accountant, I've worked with a lot of different businesses and different types of business owners. The businesses who have been most successful have been the ones with owners who are involved in their accounting and who take the time to learn the tax rules they need to follow, how to read financial statements, etc. Being a business owner isn't only about the good or service you provide but also about the decisions you need to make in guiding your company and you won't be able to do that successfully without understanding your finances.
4. Find a good CPA. You may not need one right out of the gate, but if your business is growing and actually producing income, it's in your best interest to find someone who can help you navigate the various taxes and regulations that may be imposed on your business.. A CPA will be able to tell you what forms you need to fill out - from those required to create an LLC to periodic report filing if you change addresses and more. They will set up a chart of accounts for you so you know how your income and expenses need to be classified and will create financial reports and help you understand how to interpret them. Their fees may seem lofty at first but they will end up paying for themselves over time even just by helping you avoid penalties. For example, the periodic report needed if you change your address is only $10 but if you miss filing it on time, there is a $100 fee.
We hope these tips have been helpful to you as you learn the numbers side of your business! Jenna and I both majored in Business Administration in college and were required to take accounting classes so we have a little background but Patrick's knowledge and experience has truly been invaluable to us and we don't know what we'd do without him (probably not be in business, ha!) If you're in the market for a CPA, ask your friends and family if they have anyone they can recommend. You will not regret having someone you can count on for finance questions, trust us!
Happy business building and thanks to my hubby for sharing his tips with us this week!!