Managing Your Business’ Finances

Personal finance is a necessary part of everyone’s life. It becomes especially important for those who are self employed. Managing credit, budgeting, payroll, taxes and so on. can be overwhelming at times.

As a part of starting a business, it is important to have working capital. Working capital can come from revenue alone however, it often comes in the form of loans or business lines of credit.

With my company we manage our money in a number of different ways. Hopefully those of you who own their own business can comment and add some insight to the art of managing a company’s finances.

First off, I am co-owner of an LLC. It is important to mention this first off because depending on the type of business you own, can have tax consequences that would need to be worked into your company’s financial plan.

To find out more about different types of business structures you can do a quick Google search. I will cover this topic and the tax consequences at a later date.

Managing Revenue:

We mostly use Paypal as our business checking/payroll account. Most revenue comes into this account and we choose to keep it there because Paypal pays us 5% interest on the money we keep in the account. We have business accounts at Chase and Bank of America as well, but the interest rate you get with those accounts is pennies on the dollar in comparison to Paypal. Paypal also offers a debit card which makes it even more convenient to use, especially for the business purchases.

You can use ING or HSBC to get similar interest rates, it is just more convenient for us to use Paypal because most people already use this service.

Another plus of keeping the money in the business Paypal account is that we don’t have to pay income taxes on the revenue that we leave in there. We don’t have to pay taxes until we realize this income, which means to transfer the money to our personal accounts. The tax consequences (or lack there of), are because of the LLC (Limited Liability Corporation).

Managing Debt:

As I mentioned earlier, having debt in the form of business loans or lines of credit are just as much a part of the typical business as regular checking and savings accounts.

Right now, we have a business line of credit through Chase bank. With a business line of credit we can borrow from it and pay it back as we see fit. This means that if I borrow 25k for 6 months, I can pay it off and the 25k would be available again once I pay it down. The dollar amount of the loan doesn’t expire. The rates does vary but not enough to worry about. This is a permanent form of working capital that can be helpful in a tight situation or any start up business. The interest we pay on this loan we can write off as a business expense as well.

We qualified for the loan based on personal credit, income history, total assets and total liabilities.

We also have business credit cards from both B of A and Chase. We don’t use these that often but 0% interest business credit cards aren’t that hard to come by and I would recommend using one if you don’t already. Again, any interest paid on these cards can be written off as business expenses.

Managing Expenses Like Payroll:

We just picked up the latest copy of Quickbooks Pro 2007. We have used previous versions and it meets all of our needs sufficiently. We can manage expenses such as electricity bills, cell phone bills etc, as well as payroll. We don’t have many employees yet and most are freelance anyway. However, once we have 5-10 employees, I will want to use a more sophisticated payroll system. Have you had any good experiences with any particular company?

I believe an absolutely necessary part of any small business owner’s financial plan is having a good CPA (Certified Public Accountant). He/She will be able to save you large amounts of money in both the short and long term.

Another critical part of a business owner’s finances is re-investing, investing, and planning for retirement. I will cover these topics in a future post.

I would like to hear of some successes and failures from you guys along with any recommendations you may have for me. Thanks!