When you start your online business… there’s a lot of things no one tells you. Like what the heck are business taxes? SP or LCC? SEP IRA or 401K? How much should all of this cost? Do I need a lawyer? An accountant? These are some valuable lessons I learned early on in my business that are SO important, especially for service-based business owners to know!
Let’s dive into the list!
If you'd rather listen to this post than read it, you're in luck! Use the audio below to listen to this post. You can also download and take it on the go, just like a podcast. The audio version has some additional details as I dive a little more into each point. ENJOY!
1. Keep your business and personal finances 100% separate.
My first ENTIRE year of business, our personal money and my business money were one in the same - as they shared a checking account. Not only does this get confusing the larger your business grows, but it’s also bad for keeping track of things for tax purposes. My suggestion: open a business checking account through the same bank as you have for your personal finances. I use Regions Bank, and love it! I pay $5/month for my business checking account, and it’s totally worth it! I wish I would have taken this step sooner.
(P.S. if you use my link when you sign up with Regions, you’ll receive a $150 Visa gift card!)
2. You probably can’t go “full time” immediately.
Building a business of any kind takes time. I am blessed to have had a couple of clients from day 1 of quitting my advertising job, but a couple of clients does not pay all the bills. You need a consistent income flow while you’re building your business. For me, the consistent income came from nannying. For you, this could be something entirely different. The goal is to find a job that leaves you with extra time to work away on your business!
3. Set aside a lot of money for taxes.
Paying taxes when you’re self-employed means you’re paying a lot more than everyone else out of pocket, and yes it kinda (totally) sucks. As a general rule of thumb, you should set aside 20 - 25% of what you make each month for taxes. I use QuickBooks Self-Employed now, and it helps me keep track of EXACTLY how much to pay quarterly and all the details on my deductions and expenses. I really wish I had used a system like QuickBooks my first year in business. It would have saved me a lot of headaches! Educate yourself on taxes and the financial side of your business. It does not have to be so scary! There are tons of free resources online to help you learn more and the next step will also help…
4. Meet with an accountant who understands your type of business.
Last year, I met with an AMAZING local accountant named David. (If you’re in the Nashville area, I’d love to refer you to him!) We sat down in a coffee shop and worked through allllllllll my financial business questions. He is a small business owner too in my city, so he understood my world and was able to offer excellent advice. I brought a list of questions about everything from deductions to retirement savings, and he helped me better understand it all and correct the things I was doing wrong. This year he is doing my taxes. Even if you don’t hire an account for the long-term, getting initial help is a game changer!
5. Pay yourself a salary.
- I used to pay myself every cent I made, every month. As expected, some months were higher than others, so my income was always somewhat inconsistent. I was never saving money to reinvest in my business or saving to pay myself when I want (or needed) to take time off. Now, instead of paying myself my full profits, I save money in my business checking account for those months where I bring in less money or am taking a vacation. If you’re someone who is often stressed month-to-month trying to hit income goals, saving on those big months can really help! By doing this YOU run your business instead of it running you. You are also setting yourself up to be able to plan time off from work. This year, I plan to take a month off from client work in the winter to vacation and spend more time with friends and family. But, in January (10 months in advance) I’m already thinking about and planning for this!
6. You’ve got to spend money to make money.
As someone who runs a service-based business, my operating costs have always been on the lower side. Early on in my business, I was super cheap and spent only the bare minimum. This was definitely a good move starting out, but as things have grown, I had to have a mindset shift about putting money back into my business. I do this through things like hiring contractor designers, attending education workshops/conferences, coaching programs, and little things like buying business books.
7. Think about retirement now.
Saving for retirement is ESPECIALLY important for self-employed individuals. After all, you don’t have a company helping you save with matching and there’s no one automatically investing for you from each paycheck. I set up a SEP IRA (Self Employed Pension IRA) for myself with Betterment. I cannot say enough good things about Betterment! It’s clear and easy to use. You also don’t need to invest a lot of money upfront to get started.
8. Pay attention to what’s working and not working in your business.
Where are your clients finding you? What packages are most people purchasing? Do those purchases align with where you are putting in the most work? When people decide not to work with you, why is that?
Keep records, evaluate these things (at least) quarterly, and always be looking for ways to improve! If you don’t have a clear picture of what’s going on in your business, you can miss opportunities for change that lead to major growth!
There you have it! Now, go get it! Set up that business banking account and get ready for retirement. You can totally do this!