Owning a business and running one has become a phenomenon that has taken over a great part of the economy in the United States. As some business owners have experience running a business, perhaps even have a background in the private sector, or maybe even an MBA; here are five steps all small business owners should follow.
Separate your personal and business finances.
Running a business means literally business and before you can get into the process of having a business, you must take an especially important step and that is separating your business finances from your personal ones. The reason this crucial is not only for the organization and tax obligations you have but by keeping these finances separate you will have an easier way to manage your bookkeeping. Apart from this reason, separating your business and personal finances is important as well to avoid legal implications. When you separate your finances this way, your personal finances are then protected as well if you ever face legal issues with regards to your business.
Organize your business finances with a trusted accounting professional.
The next step is understanding the basics of small business accounting. It may be an intimidating task, but it is absolutely necessary to be compliant and operational all across your business. There are a few accounting terms we can discuss further but if you are unfamiliar with these terms, we strongly suggest getting good accounting software and hire a professional to keep in our opinion, the most important part of your business operating perfectly.
Key Accounting Terms to Know Gross revenue, expenses, net profit, cash flow, breakeven point, liabilities, assets, balance sheet, income statement, revenue forecast, and reconciliation.
Understand the meet your tax obligations as a business.
After separating your finances and organize your accounting, it’s now time to understand your tax requirements and obligations. This part can be confusing and it’s always best to speak to an expert that better understands tax planning and preparation. Keep in mind, that not fulfilling your tax responsibilities has consequences and you could lose your business and even face criminal charges. There a couple of things you need to consider to get ready: Obtain an EIN number, understand your income tax, self-employment tax, estimated tax owed, employment tax, excise tax, and state tax obligations.
Manage your personal and business credit scores with a professional.
As a business owner, your personal credit can benefit or affect your business potential to credit. Take a look at your personal credit and work into optimizing your score to have business loan opportunities. A few things to consider: Pay all your loans in full or on time, avoid loan defaults, do not max out your credit cards, keep spending on all your credit cards as low as possible to keep your credit limit, monitor your credit for irregularities.
Explore business loan options for the future.
With the exception of SBA loans such as PPP or EIDL loans – it can be quite difficult to obtain a bank loan for your business, it is always best to speak to a professional to help you build credibility, history, and an optimal business structure to take your company where it needs to be from a financial standpoint. When financing, look at the term loans, what type of financing you are getting the loan for, the line of credit if any, and the collateral and personal guarantees.