5 total beginner tips for understanding and managing small business finances

Alecia Humphreys

| Feb 09, 2021

Pursuing your passion to create is one thing. Getting paid to share it is another. Launching a small business is often a one-stop shop in the start—from the obvious product creation to marketing to finances

Understanding the art of managing your own business’s finances may be essential for small business owners, but it’s also a great way to understand revenue opportunities, cut overhead and production costs when possible, and discover opportunities to scale  

With these five helpful tips, you under stand the basics of small business finance and build a solid foundation for your business to grow in the future.

1. Make it official and open a bank account

It may seem unnecessary at first to open up a professional business bank account, however, it’s a crucial step in small business finance management—especially when it comes to keeping your personal and business finances separate.

Once you have your Employer ID Number, which you will use during tax season and will act as your business ID, open an account. Start by opening a business checking account and add a savings account to help organize funds and plan for taxes. 

However, be sure to shop around for accounts. Business checking accounts have higher fees than individual accounts, so it’s important to compare fees closely when shopping for a bank to meet your business needs.

Separating your business expenses on their own account or credit card make them much easier to track and record. This also isolates business expenses, which may be tax-deductible come tax time.

Mixing personal and business expenses can get messy and even lead to possible legal disputes if you don’t uphold the corporate veil, so it’s best to simplify things. But always consult a lawyer and financial expert when dealing with matters of personal and professional liability.

2. Master smart spending to build your credit

You’ve got to spend money to make money—or, in this case, spend money to build credit. Everyone has a personal credit history, which lends to your personal credit score. For a small business, having a business credit score is just as, if not more, important if you have plans to make purchases that require financing to further your business's future.

Your business credit score will determine whether you are deemed fit of credit worthiness and will help lenders determine whether, essentially, you’re able to pay back what you’ve borrowed. If you do have a poor credit score, it could make opportunities like purchasing insurance, finding real estate, and scaling your business a little more ominous. 

Your best bet may be to focus on establishing your business’s credit early on in your business plan so you can raise that credit score to an acceptable level.

3. Get comfortable with numbers

Owning and operating a small business may seem idyllic from the outside, and in many ways, it is when it’s your passion. However, there are also the unseen tasks to owning a business, such as bookkeeping and budgeting, that can seem intimidating or time consuming.

Go back to budgeting basics

Budgeting may seem like an overt suggestion, however, there is a reason it’s recommended by so many financial experts in the game. Knowing where your money is going allows you to simultaneously see where you can save or cut corners.

Make a spreadsheet and start budgeting conservatively with additional slack. Always factor in some level of the unknown because there will undoubtedly be factors and unexpected elements—like a global pandemic—that you could never account for. When the time comes when you need to cut costs, consider categories that could be controlled to a large degree.

And don’t forget to shop around for both services, tools, and supplies because more than likely businesses will fight for your business (and, of course, save you some money).

Things to consider in your budget:

  • Your monthly and annual expenses (email providers, tools, memberships and subscriptions, office space, affiliate payments)
  • Any transaction fees or recurring payments
  • Your own salary
  • Your financial reserve or emergency fund

Ultimately your budget is more than a set of numbers to fill in each month. It is a guiding light that allows you to see opportunities to make more revenue, save, and even expand.

Become a bookkeeping pro

Outsourcing bookkeeping to accounting professionals is an obvious option. However, if you are just starting out it may be a slight stretch for your budget. 

So if you have to start on your own, start with some basics like what exactly is bookkeeping. Bookkeeping is the process of recording and managing all financial transactions—sales, purchases, payments, etc.—for your business.

You can choose accounting software like Quickbooks to keep track or even something as simple as Excel or Numbers on a MacBook. Basic things to consider keeping track of are: assets, liabilities, revenues/income, expenses, and equity. 

Although each business's bookkeeping process won’t look exactly the same, these are methods commonly used based on your business needs. Always consult your accountant or fincial advisor before making any major financial decisions.

4. Perfect payroll

You may be solo for a second, however, once it’s time to hire help you’ll have payroll perfected—from setting a payroll schedule to ensuring you’re withholding the appropriate amount of taxes. Also, don’t forget to include yourself in the payroll. Yes, you read that right.

Once sales start, you’ll need a way to accept those sales with a merchant account (an account that allows your business to accept credit card payments from customers) or via a third-party processor. Should you pick a third-party processor, just be sure to do your research as some processors charge flat fees for transactions, while others have a monthly membership model.

Those using either of Teachable’s custom payment gateways, Monthly Payment Gateway or Teachable Payments, can opt-in to BackOffice, which provides services such as automatic author/affiliate payouts. So if hiring an employee is out of the picture, start small and simple with a robust affiliate network. With Teachable Payments and BackOffice, we manage affiliate payouts for you every month and even make sure they have their tax forms in place, so you don't have to.

5. Tackle taxes the right way

If you're a Teachable creator, you have several options for how you handle getting your payments from your courses and each one can work for you. But, when selling anything, it’s important to consider the matter of taxes. If you opt for your own custom gateway, you’re responsible for collecting and remitting VAT taxes on your own. But why make things complicated? You have a business to run.

That’s where we come in. We listened when creators say they don’t want to be bothered with tackling some of the more difficult aspects of small business finance, like taxes. Teachable’s custom payment gateway, Teachable Payments, takes away some of this stress. Those creators using Teachable Payments will automatically collect and remit VAT and sales tax—and help put money back into your business faster.

And if you’re concerned about tackling your own taxes, make sure you’re up to date on the independent contractor requirements for your location. Explore more of this here. And as always, consult your tax advisor to see what is best for you and your business come tax season.

You're not expected to be a finance pro from your first sale. But, you can take some small steps now to help set you up for success in the future. The sooner you understand small business finance basics, the sooner you'll feel more in control of managing your business from every aspect.

Editor’s note: This is not financial advice. Please consult your accountant or financial advisor on any financial decisions regarding your business or personal finances.

Alecia Humphreys is a freelance writer in the greater St. Louis area. By day she is a stay-at-home mom, busy building blocks and reading books. By nap time she is a proofreader and storyteller passionate about sharing peoples’ passions.