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Creating a Budget for an Entire Year Useful for Small Business

Why is Creating a Budget for an Entire Year Useful for Small Business

In the realm of small business management, creating a budget for an entire year is not just a suggestion but a critical necessity. A comprehensive yearly budget serves as a roadmap for financial success, guiding businesses through various fiscal challenges and opportunities. This article explores the significance of annual budgeting for small businesses, highlighting its benefits and offering insights into effective budgeting strategies.

What is Budgeting?

Budgeting is essentially the process of devising a financial plan

Budgeting is essentially the process of devising a financial plan for an upcoming period. Typically conducted annually for the next fiscal year or even extending over multiple years, companies may also engage in quarterly or monthly budget revisions or preparations.

Capital Budget can take various formats, ranging from a basic breakdown of the business monthly income, emergency fund and expenses by category or department to comprehensive financial statements encompassing the Income Statement, Balance Sheet, and Cash Flow Statement. Most budgets outline a company’s projected income and expenditures.

In essence, a budget serves as the financial roadmap for a company, ensuring that it can finance both current and future initiatives while providing insights into performance and cost factors to save money for the business and facilitate sound financial future and decision-making.

Spending plan allows businesses to translate their strategic goals into a financial framework, addressing key aspects and addressing questions concerning:

Objectives: What achievements are sought after? (e.g., revenue targets, margin enhancements, etc.)

Strategies: How will these goals be pursued? (e.g., market expansion, increased marketing expenditure, pricing adjustments, etc.)

Metrics: What are the critical performance indicators and input-output metrics? (Key Performance Indicators and drivers of business success)

Preparing for the budgeting process involves careful consideration of these elements to ensure alignment between financial planning and overarching business objectives.

Understanding the Importance of Budgeting

1. Establishing Financial Stability

One of the primary reasons for creating a budget for the entire year is to establish financial stability. A well-defined budget provides a clear overview of monthly expenses and income, allowing businesses to allocate resources efficiently. By spending money strategically based on the budget, businesses can avoid financial pitfalls and ensure they have enough money to cover essential costs.

2. Planning for Unexpected Expenses

Small businesses often encounter unexpected expenses that can disrupt their financial stability. From emergency repairs to unforeseen operational costs, these expenditures can strain cash flow if not accounted for in advance. However, with a yearly budget in place, businesses can earmark resources for such contingencies, creating a safety net to mitigate financial risks.

3. Setting Financial Goals

An annual budget serves as a tool for setting and achieving financial goals. Whether it’s reducing debt, increasing savings, or expanding operations, a well-crafted budget provides a framework for aligning spending plans with long-term objectives. By allocating funds strategically, businesses can work towards financial independence and sustainable growth.

4. It May Open Doors More Money to Funding Opportunities

For individuals employed at a startup or contemplating seeking external investors, possessing well-documented budgetary data is crucial. When evaluating whether to invest in a company, investors place significant importance on its historical, current, and projected financial performance.

Presenting documentation from previous periods that includes both budgeted and actual expenditures can demonstrate your adeptness in managing a company’s finances, allocating resources, and adapting as necessary. Certain investors may request your current budget to gauge your anticipated performance and strategic focuses derived from it.

Understanding the Importance of Budgeting

5. Conduct Assessments of Employee Performance

In small businesses where human resources are often scarce, leaders can leverage budgetary measures to assess the effectiveness of their employees.

For manufacturing enterprises, these budgetary measures might involve performance and operational budgets. For example, establishing labor or production volume budgets within a manufacturing setting.

Another effective approach to harnessing small business budgeting is to assess business profitability in relation to established budgets. This involves conducting thorough comparisons of revenues and expenses across each budget period, allowing for an evaluation of operational efficacy and, consequently, the business’s profitability.

6. Be Ready for Unexpected Situations

The recent events have taught many of us the importance of being prepared for unforeseen circumstances, often through difficult experiences. Small businesses, especially, are vulnerable to external market forces such as economic downturns, political instability, pandemics, and other macroeconomic factors.

Utilize your budget as a tool to ensure you operate within your financial capabilities while also laying the groundwork for business expansion. It’s wise to set aside a portion of your revenue consistently for emergency savings, without resorting to borrowing, thus creating a safety net for unexpected expenses.

7. Distribute Resources

Small businesses frequently encounter limitations in resources. Adhering to a well-defined budget guarantees continuous access to essential resources necessary for operational sustainability. For example, although a small business may generate profits, its cash flow could be restricted.

Analyze your budget to effectively distribute these constrained resources. Implement comprehensive budgetary measures across various departments to facilitate efficient resource management throughout your small business.

Leveraging Budgeting Tool and Resources

Utilizing Budgeting Software

In today’s digital age, budgeting software offers small businesses a convenient and efficient way to manage their finances. These tools automate budgeting efforts and provide real-time insights into income and expenses, enabling businesses to make data-driven decisions. Moreover, budgeting templates provided by these software solutions streamline the budget creation process, saving time and effort for busy entrepreneurs.

Monitoring Cash Flow

A yearly budget helps businesses maintain a healthy cash flow by anticipating income and expenses over a given period. By closely monitoring cash flow patterns, businesses can identify potential shortfalls or surpluses and adjust their spending plans accordingly. This proactive approach ensures that businesses have enough money left to cover their operational costs and pursue growth opportunities.

Identifying Variable Expenses

Not all expenses are fixed; some vary depending on business activity or market conditions. These variable expenses can significantly impact a business’s financial situation if not accounted for in the budget. However, by analyzing past trends and projecting future costs, businesses can accurately forecast variable expenses and adjust their budgeting priorities accordingly.

Leveraging Budgeting Tool and Resources

Ensuring Long-Term Financial Success

Fostering Financial Discipline

Creating a budget instills financial discipline within the organization, ensuring that spending aligns with strategic objectives. By adhering to the budgeting plan, businesses can avoid impulse purchases and unnecessary expenses, thus preserving capital for critical investments. This disciplined approach lays the foundation for sustainable growth and long-term success.

Enhancing Decision-Making

A comprehensive budget provides top management with valuable insights into the financial health of the business. Armed with this information, decision-makers can evaluate investment opportunities, assess cost-saving initiatives, and make informed decisions that drive business performance. Moreover, by tracking budget variances and performance metrics, businesses can course-correct as needed to stay on financial track.

Conclusion

In conclusion, the importance of creating a budget for an entire year cannot be overstated for small businesses. From ensuring financial stability to setting strategic goals, a yearly budget serves as a roadmap for financial success.

By leveraging budgeting tools and resources, businesses can optimize cash flow, minimize risks, and maximize opportunities. Ultimately, effective budget management is key to building a resilient and prosperous business in today’s competitive landscape.

Frequently Asked Questions (FAQs)

1. What is the significance of budgeting for small businesses?

Budgeting is essential for small businesses as it serves as a financial roadmap, guiding them through various fiscal challenges and opportunities. It helps in establishing financial stability, planning for unexpected expenses, and setting and achieving financial goals.

2. How often should small businesses create a budget?

Small businesses typically create a budget annually for the upcoming fiscal year. However, some may also engage in quarterly or monthly budget revisions or preparations to adapt to changing circumstances and ensure financial alignment.

3. How does budgeting contribute to financial stability?

Budgeting allows businesses to allocate resources efficiently, ensuring that they can fund both current operations and future initiatives. By strategically managing expenses and income based on the budget, businesses can avoid financial pitfalls and maintain stability.

4. How can budgeting aid in assessing employee performance?

Budgetary controls can be utilized to evaluate employee performance, particularly in manufacturing businesses. Performance and operational budgets can be established to set targets for labor or production volume, allowing leaders to assess operational efficiency and profitability.

5. Why is it important for small businesses to prepare for unexpected situations?

Small businesses are vulnerable to external market forces such as economic recessions, political turmoil, and pandemics. Budgeting helps businesses prepare for unexpected expenses by setting aside emergency savings, ensuring they can navigate through challenging times without resorting to borrowing.

Finding the Right Bookkeeper for Your Business

Are you looking for reliable bookkeeping services for your business? Like many business owners, you may not know where to start. When you are passionate about your business but the numbers are overwhelming and challenging for you, competent and professional bookkeeping services can easily take care of the dollars and cents on your behalf. If you would like to be truly profitable and successful, you have to keep tabs on your business finances.

As a small business owner, if you do not know where you stand on a monthly, quarterly, or annual basis, your chances of surviving and growing can decrease considerably. There is no doubt that a bookkeeper can help manage your finances, provide valuable insight, and can have a big impact on the trajectory of your small business.

Here are five things you should consider when hiring the right bookkeeper for your business.

1. The Right Experience and Expertise

When you start researching potential bookkeepers or bookkeeping companies, find out about their experience level. It is no secret that every industry has its unique quirks when it comes to financial record-keeping. Check to see if the company or candidate has experience and confidence that they can navigate the ins and outs of your industry.

In addition, make sure you have the right experience for the right role. Instead of having one person try to tackle all your finances, look for a team of specialized individuals who work well together. Having someone who specializes in bookkeeping focus on your books and an accountant who specializes in tax do your taxes can improve accuracy and save you money.

While a company website will certainly offer some valuable insights into their experience, you should ask a few important questions. Some of them are:

  • How long has the candidate or company been in the bookkeeping industry?
  • What type of clients do they serve?
  • Do their services meet your business needs?

Accounting and bookkeeping is not an easy science. So, for a business that is starting out or growing, you need to have somebody who has been successfully doing this job for quite some time.

2. Communication is Key

If you are not good with numbers, you need a professional who will help you understand and appreciate the numbers. So, it is important to make sure that your communication style and the communication style of your bookkeeper work well together.

Some bookkeepers or bookkeeping companies charge extra for financial reviews or consultations. Ask about potential additional costs and be sure to factor those into your budget. It’s good practice to meet with your bookkeeper or accountant at least once per quarter to get a better gauge on your business finances.

Your bookkeeper needs to present your business finances in a simple way that makes sense and also keeps you informed at both the frequency and level that you prefer.

3. They Must Have Attention to the Detail

Numbers can be challenging and tricky to deal with. Keep in mind that even a small error or mistake in figures could impact your company. Look for a bookkeeping company or individual that has a thorough review process so you can have confidence your reports are accurate. A bookkeeper’s ability to give attention to the smallest details can ensure that mistakes or errors are minimized.

4. Look for Transparency and Trustworthiness

When it comes to bookkeeping, transparency must be among the first things that you should look for in a candidate. The bookkeeper you choose should be able to give you an instant and reliable quote for their services without any hidden fees that may pop up after several months of working together. There is no doubt that this is the type of transparency and honesty that you need in the bookkeeper who will be handling your business finances.

Also, note that any bookkeeping professional that you hire should be a reliable and trustworthy candidate. You will entrust this professional with confidential and sensitive financial details of your business. Choosing an individual or company that you could rely on and trust would give you peace of mind.

5. Up to Date on Tech

The financial industry is continually evolving, and while the principles of bookkeeping and accounting might not change, there are ways your bookkeeper can make your financial data more accessible and digestible than ever before. Look for a bookkeeper who is open to adopting innovations and can keep up with changing technology to provide you with the best experience.

The right bookkeeper for your business should be adept at using standard bookkeeping software and tools, and they should also have an innovative mindset to help you have better insight and make informed business decisions.

There is no doubt that hiring a bookkeeping professional or company can be an important decision for your business. An excellent bookkeeping partner will be with you and help you every step of the way as your company grows.

Small Business Dreams a Reality

How to Make Your Small Business Big Dreams a Reality

Starting a business is a dream that many people have. The idea of creating something that is your own, being your own boss, and being able to turn your passion into a full-time job is compelling. In order to be successful and make your small business idea come to life, you have to take time to figure out all aspects of your business to see if it has potential. While starting a business can be challenging, watching your dream come to life is beyond rewarding. Below, we share some advice on how to get you on your way to making your small business dreams a reality.

Conduct Research

Conduct Research

When building a business, it’s important to do your research. Taking the time to figure out what you want your business to be and where it will fit into a competitive market is vital to the overall success of your business. When doing your research, you should look into the type of companies that currently exist in the market that you’re trying to enter to see if and why they have been successful. Is there so much competition you might struggle to gain your footing? How can you stand out from the competition? You should also look into potential consumers to see how your business can help them.

Take some time to gain more insight as to whether or not your business can make an impact within that industry. Understanding your potential market will allow you to better form your business plan. It can also help to fine-tune your business idea so that you are not starting a business around something that is already well-saturated within that market.

You should also consider your potential competitors.  It’s important to be able to diversify your business, so taking the time to research all aspects of your potential market and competitors will allow you to better understand where your business can fit in and how you can be successful in that space.

Create a Business Plan

A business plan is important because it outlines your overall goals and shows how you plan to achieve them. Creating this plan in the early stages will allow you to better visualize how you want your business to operate, allowing you the freedom to make any changes that you want before fully moving forward in this process.

When creating your business plan, be sure to consider all aspects of your business. A business plan should highlight:

  • Your goals and objectives
  • Your product or service
  • Market  and industry research
  • Competitor research and how you plan to stand out
  • Consumer research and how you plan to solve their pain points
  • Your marketing strategy
  • Your financial approach

It’s important to address all of the major components of your business so that when you are at the financing stage of the process, there will be a clear explanation of what your objectives are and what you plan to accomplish with your business.

A business plan will also help you stay organized throughout the entire startup process.

Determine Your Financial Strategy

Determine Your Financial Strategy

Figure out your finances early on so that you can ensure you get your business off the ground. Without proper financing, it will be difficult to start your business. It’s important to create an outline of what your expected expenses will be so that you can budget your money wisely. Starting a business is expensive and there are many unexpected costs that will come up. It’s just a reality of being a business owner. When making your business plan, you should budget for not only the expected costs but also the unexpected costs so you are not overwhelmed or scrambling when they come up. That will also give you more flexibility when new opportunities arise.

There are many different ways to fund your business. Some people prefer to look into reaching out to investors for assistance, while others may consider taking out a loan.  If you’re someone who is looking to go the route of working with investors, then it’s vital that you have a sound business plan to show potential investors.

If you are considering a loan instead, then it may be worth considering a small business loan. A small business loan is partially guaranteed by the government, eliminating some of the risks for the financial institution issuing the loan, but it can be difficult to acquire. Small business loans have specific requirements that have to be met in order to qualify, but if those requirements are met, then it may be a good option for your small business. If not, another long-term option to consider is looking into refinancing your home to a 30-year fixed mortgage, which will lower your monthly mortgage payment, allowing you to allocate the extra funds toward financing your new business.

Consider Your Accounting and Taxes

Once you figure out how you will finance your small business, you should also consider how to handle your small business accounting and taxes. Having a detailed understanding of your financial reports will help you make informed decisions for your business, and you want to ensure your company does not have any surprise tax bills or compliance problems with the IRS.

If the idea of doing your own accounting makes your blood pressure rise, consider looking into small business accounting options. There are affordable options for small businesses that will take care of your accounting, bookkeeping, financial reports, and taxes. In fact, at Vyde we often save our clients more in their taxes than our services cost for an entire year. Utilizing the help of an accountant or accounting service will save you stress and provide the security of knowing your taxes are done right.

It’s important that you take the time to finalize all aspects of your business idea before moving forward. Starting a small business takes time and is a big commitment. Making sure that you are well prepared with what to expect, can allow the process to run smoothly and your business to be successful.

Consider Your Accounting and Taxes

Vyde Wants to Help

Vyde helps small business startups like yours with all their accounting, bookkeeping, and taxes. Our business is helping you stay in business. We’ve helped over 10,000 small businesses already! Contact us today to see how we can help you.

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LLC, C Corp, S Corp, Sole Prop, Partnership: What Is Best for My Business?

As a small business owner, there are many decisions you will need to make many decisions that will impact your company for years to come.

Among these decisions is which corporate entity is best for your business. In this blog, we will review 5 different types of business entities (single and multi-member LLC, C Corp, S Corp, Partnership, Sole Proprietorship) along with their advantages and disadvantages so you can decide which works best for your business.

Sole Proprietorship

Sole Proprietorship Advantages and Disadvantages

Many small business owners form a sole proprietorship when they’re just starting out.

If you are a sole proprietor, this means that you own and operate your business by yourself. You have complete control. All the profits of your business are yours.

However, with a sole proprietorship, you have no liability protection, which means you are responsible for all losses and debts as well. If any legal issues arise, you will be held personally responsible and those debts will need to be paid from your personal account.

A sole proprietorship is one of the simplest and least expensive entities to form because no legal paperwork is needed. However, your city or state may require you to obtain a business license, so be sure to look into the requirements for your specific state. In addition, you will want to register your business name with your state.

When it comes to your business taxes, filing is quick and easy. You can file your business taxes with your personal taxes using a Schedule C form.

In addition, you can deduct expenses and losses from your business against any other income you might earn, which will lower your tax bill overall.

The one drawback about taxes for a sole proprietor is that you are expected to pay a 15% self-employment tax on all your net income, which covers Social Security and Medicare taxes.

You are also required to pay estimated quarterly taxes throughout the year. These payments are usually due April 15, June 15, September 15, and January 15. If you fail to pay estimated taxes quarterly, you may have to pay a penalty and interest on what you owe.

Overall, the advantages to forming a sole proprietorship are that it is the least expensive entity to form, you have complete control of your business, and tax preparation is quick and easy.

The biggest disadvantage is no liability protection.

General Partnership

Partnership Advantages and Disadvantages

A general partnership is simple to form. Like a sole proprietorship, your city or state may require you to obtain a business license, and you will want to register your business name with your state.

I’d also strongly recommend that you set up an operating agreement for your partnership. What are the roles and responsibilities of each partner involved? What percentage of the profits will you share? Determining this at the start will benefit your business as you get up and operating.

Like a sole proprietorship, a general partnership does not give you liability protection. This means each partner in the business is personally responsible for any debts or legal action.

General partnerships are also required to pay the 15% self-employment tax on all their net income as well as quarterly estimated taxes. However, as a partnership, you have a lot of flexibility and can deduct any losses in your business against other income to lower your taxes.

That’s where the similarities between a general partnership and a sole proprietorship end. Partnerships add more complexity because there are multiple owners involved.

In a partnership, you will file a partnership tax return every year on Form 1065. Then, each partner is given a Schedule K-1 showing their individual share of the profits and losses, based on your agreement. That means you will need to file a form as a partnership as well as the Schedule K-1 as part of your personal tax return.

Single Member LLC vs Multi Member LLC

The main two types of LLCs are single member LLC and multi member llc. Comparing single member LLc vs multi member LLC, you want to account for how many owners are involved in the business. More of the similarities and differences between these two business structures are discussed below.

Single-Member LLC

Single-Member LLC Advantages and Disadvantages

A limited liability corporation, or LLC, is more expensive to form than a sole proprietorship.

An LLC must be registered in the state where it does business. Each state varies slightly, but most require you to choose a distinct name and to file articles of organization. These articles of organization include information like your business name, address, and the names of its members. Many states charge a filing fee for the articles of organization. For most states, you file with the Secretary of State; however, each state is different, so carefully check the requirements in your state.

Unlike a sole proprietorship, an LLC offers liability protection, which means your business assets are separated from your personal assets. So, if your business is sued or runs into financial trouble, the business will be responsible for paying any fees, not you personally.

In addition, with a single-member LLC, you have complete control and flexibility. All the profits of the business are yours, and you can deduct any losses in your business against other income to lower your tax bill.

However, like a sole proprietorship and partnership, you will be required to pay self-employment tax on all of your net income to cover Social Security and Medicare taxes, unless you elect to be taxed as an S corporation. You are also required to make estimated quarterly tax payments.

As a single-member LLC, you can elect to be taxed as a sole proprietorship or as an S corporation, which we will discuss in more detail below.

Multi-Member LLC

Multi-Member LLC Advantages and Disadvantages

A multi-member LLC shares many similarities with a single-member LLC. For example, you get the same liability protection. You also go through the same formation process and file documents with your state. And you can elect to be taxed as an S corporation.

The main differences between a single-member and multi-member LLC revolve around the fact that multiple business owners are involved. Because of this, you can not elect to be taxed as a sole proprietorship. Your LLC will need to file a business tax form and each partner will need to fill out a Schedule E on their personal tax return, unless you elect to be taxed as an S corp, which we will discuss below.

In addition, some complexities arise with sharing control of the business, which is why you will want to have an operating agreement in place.

S Corporation

S Corp Advantages and Disadvantages

S corps have the benefits of a corporation but are taxed as a partnership. Like an LLC, an S corp separates business owners and their assets from the business. Creditors can only go after the business but can’t touch the business owner’s assets.

However, establishing an S corp takes more leg work and paperwork than an LLC. Most S corps spend a considerable amount on attorney and accounting fees.

An S corp also requires more maintenance. For example, to be an S corp, you must develop a board and bylaws, issue stock, hold board meetings, and keep records of each board meeting.

In addition, the IRS also has the following requirements for S corps: 1) shareholders must be US citizens, 2) you cannot have more than 100 shareholders (spouses count as separate shareholders), and 3) you can only have one class of stock.

The taxation of an S corp is what sets it apart from other business entities. When you have an S corp, your business is taxed through the shareholders’ income, and those taxes are taken out throughout the year.

Any shareholder who works for the company must be paid a reasonable wage. After the wages are paid, the rest of the income from the business is passed onto the shareholders as dividends. The benefit of an S corp is that dividends are taxed at a low rate if they are taxed at all. An LLC taxed as an S corp can also take advantage of these benefits.

To take advantage of these tax benefits, you are required to set up payroll for your owners and employees. The laws for S corps are not the same in each state, so you will want to look into individual requirements for your state.

C Corporation

Unlike an S corp, a C corporation protects the small business owner or owners by acting as a fiduciary barrier between the income a business brings in and the progenitors and stakeholders responsible for its operations as executives.

While S corps are considered “flow-through” entities, C corps are not. C corps exist separately as a taxable party in the eyes of the government. This “double taxation” notion is the key reason many small business owners opt to establish themselves as LLCs or S corps instead.

The decision between LLC vs. S corp vs. C corp vs. partnership is often fraught with pitfalls. While many publicly-traded companies are C corps on the books, this classification is typically only chosen by those with the means to dodge double taxation at the end of the year. Two common examples are lawyers at the helm of their own firms and doctors in private practice.

So, which entity works best for your business?

Unfortunately, there is no simple answer. Depending on your business, industry, structure, and revenue, different benefits might outweigh some of the disadvantages.

In addition, what entity works best for your business might change as your business grows. So the best advice I can provide is to know these pros and cons. Then, as the complexity of your business increases, seek the advice of experts who can analyze what works best for your situation. Paying extra for expert insights now can have significant payoffs in the long run.

If you want customized insights into your business, reach out to our team! We would love to help. We specialize in small business accounting, bookkeeping, and taxes, and we enjoy having ongoing discussions with our clients to help them make decisions that will lead to their business success.

Financial Tips All Business Owners Should Know

5 Financial Tips All Business Owners Should Know

Running your own business is rewarding, but it can also be overwhelming. There are dozens of administrative tasks to keep tabs on besides your day-to-day work. I’ve been there, and I’ve felt that nagging feeling that I am letting something important slip through the cracks.

That’s why I wanted to put together these tips to help you stay on top of your finances while growing a successful business.

1. Plan for Current Business Needs

First, let’s talk about the importance of a business plan. How does an idea develop into a fully functioning business? It takes vision, work, and a good plan. To reach any destination, you need a good map. For entrepreneurs, we call this map a business plan.

Some essentials of a business plan include:

  • Researching competing products
  • Determining what sets your company or product apart
  • Conducting research into your market and client base
  • Estimating your costs and profit margin
  • Creating a marketing plan
  • Strategizing around how to pay yourself, your taxes, and other expenses

While there is a lot we could cover on the topic of business planning, for today we are going to focus on 3 important financial elements.

Tax Planning

Calculating tax rates can be tricky for small business owners. In addition to paying taxes on their income, many small business owners need to pay a 15% self-employment tax—which covers Social Security and Medicare taxes.

Because of this, I recommend that most business owners set aside 25% to 30% of their net income for taxes. Your net income is how much you make after you factor in all your expenses, so it’s your income minus any business expenses.

‌For example, if you earned $10,000 one month but spent $500 on new equipment, $250 on marketing, and $1,000 attending an educational conference, you would set aside 25% to 30% of $8,250 (your income minus all those expenses), not $10,000.

Expense Planning

How much will it cost to keep your business running? This should be something you evaluate and update regularly.

From marketing and production costs to rent and employee salaries, the expenses your business needs to keep functioning will be unique. Carefully think through any tools, equipment, and resources you need for your business. Once you’ve determined the estimated time and expense you will need to put in to your business, triple it!

No matter how carefully you plan, life happens and unexpected expenses will occur. Make sure you have enough wiggle room in your budget to handle the complications that will come your way.

Succession Planning

Setting up a succession plan includes planning for changes in your company and developing future leaders. Although succession planning doesn’t directly relate to finances, it can impact your financial planning and liability.

Think about and plan for how your business will continue to function if a key owner, partner, or employee leaves. Document processes and keep records so that if changes do occur, you still have the information you need to keep your business running smoothly.

2. Plan for Future Business Needs

Though there is a lot of uncertainty that comes with starting a business, begin with a long-term mindset by planning for the future success and growth of your company. Here are a few financial tips that will help you start on the right foot.

Set Up a Safety Net

Protect yourself and your investments as a business owner. Once your company begins generating revenue, set aside enough money to cover 2 to 12 months of expenses. Markets can change quickly. Having an emergency fund set aside will ensure you can keep your business running if an unexpected dip occurs or if you need a buffer to figure out new solutions.

In addition, diversify your investments as well as your markets. Having a diverse portfolio will protect you from sudden drops in any revenue source.

Plan for Retirement

Business owners have additional flexibility when it comes to their retirement contributions. Instead of being tied to a fixed percentage, you can adjust your retirement contributions to help lower your tax bill or bracket.

As you near the end of the year, talk to an accountant or a financial advisor to maximize your retirement contributions and tax savings. You can always reach out to our team for guidance about what is best for your specific situation. We would love to help.

Maximize Your Tax Benefits

‌3. Prioritize & Delegate

Small business owners are go-getters. But while we would love to do it all, we have to recognize that doing it all isn’t good for our sanity or our business.

Be smart about how you use your time. A survey by Sage showed that businesses around the world spend an average of 120 working days per year on administrative tasks, which impacts productivity and profitability. For small businesses, that number can climb even higher.

The takeaway is that the more time you spend figuring out books the less time you have to focus on growing your business. Find ways to lessen that burden so you can focus on what makes the biggest impact.

As a business owner, you will find there are a million and one things you can focus on in a day. Use your business plan to set a few realistic goals each month or each year. Then, use those goals to set your priorities.

Once you know your priorities, figure out what you can delegate or outsource. Find trusted partners or companies that can help you maximize your time.

4. Maximize Your Tax Benefits

There are several perks that come with owning your own business, including tax deductions. Take advantage of these benefits and understand how these deductions can impact your expenses in the long run.

You might be wondering, “How much will a tax deduction really save me on my taxes?” It’s important to weigh the costs of a business expense versus the actual tax savings to decide if that purchase is worth your money.

Luckily, we have a simple formula that can help you see the value of these deductions:

Business Expense x Tax Rate = Money You Save on Taxes

If you don’t know your tax rate, using 25% to 30% will give you a close estimate.

Some common tax deductions include:

  • Business Travel
  • Business Meals
  • Retirement Contributions
  • Vehicles
  • Phones
  • Equipment
  • Supplies
  • Employee Expenses or Contract Labor
  • Insurance
  • Website and Software
  • Education
  • Taxes
  • Marketing and Advertising
  • Home Office or Rent
  • Internet, Phone, and Other Bills

For more details, check out our guide, “17 Tax Benefits to Take Advantage of as a Small Business Owner.“

5. Review Often

Once your plans and goals are in place, review them often. I’d suggest keeping a printout of your goals someplace you can see them as you work.

When you start to feel overwhelmed, look at your goals and focus on what you can do today that will get you closer to accomplishing those goals. That will help you tackle what matters most.

Managing Business Finances

In addition to reviewing your plans, review your financial reports often. Get familiar with these reports and learn what they mean and how to read them. These will help you budget, make projections, secure loans or funding, and build a foundation for financial success!

If you still have questions regarding your business finances, taxes, or accounting, reach out to our team at Mazuma USA. We help small businesses save time, money, and stress managing their bookkeeping and taxes, and we would love to help you!

FAQs for Managing Business Finances:

Why is a business plan essential for financial stability?

A business plan outlines your vision, market research, costs, and strategies, crucial for financial stability and growth, offering a roadmap to success.

How should small business owners approach tax planning?

Set aside 25% to 30% of net income for taxes, considering self-employment tax. Deduct expenses from income and allocate a percentage for tax obligations.

What considerations are vital for expense planning in businesses?

Regularly evaluate and anticipate expenses, accounting for operational costs, marketing, salaries, and unexpected events, ensuring financial resilience.

Why is succession planning important for business owners?

Succession planning ensures continuity amidst personnel changes, safeguarding operations and financial stability by documenting processes and preparing for transitions.

How can business owners maximize tax benefits effectively?

Understand tax deductions and their impact on expenses. Utilize a simple formula to estimate tax savings and explore common deductions like business travel, equipment, and retirement contributions.

Financial Planning Tips

4 Financial Planning Tips for Small Business Owners

Financial planning is essential for anyone who wants to achieve financial independence. The goal of financial planning is to help you reach your financial goals, whether that be retiring by a certain age or having the money to open a new business. For small business owners, financial planning is especially important because you need to ensure you’re planning for your business as well as yourself.

Here are four tips to keep in mind:

1. Establish personal & business financial goals.

Because the purpose of financial planning is to help you reach your goals, you need to decide what you’re trying to obtain. It’s best to make these decisions with your family or business partners.

First, get with your family and decide what short-term and long-term goals you have for your finances. Do you want to buy or build a home? Do you want to go on a nice vacation every year? Are you planning to save for college for your children? When do you want to retire and what will retirement look like? How much money will you need for retirement? Once you set your priorities, you can begin to plan for those goals.

For your business, you’ll still need to set goals. How big do you want to grow? Do you want to get to the point where your business provides a passive income? While these goals are a big part of business financial planning, you also need to take into account how you’ll run your business. Are you setting aside money for taxes? What will happen when you (or a partner) leave the business? Do you have funds to pay your employees?

Determining what you want from your life or business can help you and a certified financial planner determine what steps you need to take to reach those goals. We’ll focus on business financial planning for the rest of this article, but talk with a financial planner to determine how you can meet all of your goals.

2. Set up a safety net.

Owning a business is a risky endeavor. Changes in the market can affect your business and leave you powerless. In order to brace for these changes, it’s smart to set up a safety net. With your financial planner, determine how much money you should set aside for your safety net.

One of the best ways to build a safety net is to diversify your income. This way, if one aspect of the market crashes you don’t lose everything. Typically small business owners have their money tied up in their own business, but you need more than that to build a safety net. Learn about different investments (stocks, real estate, precious metals, securities, etc.) so that you have multiple income streams. When you diversify your portfolio, you carry less risk.

3. Plan for your retirement.

Retirement planning is an essential aspect of financial planning, especially for business owners. Just because you love what you do doesn’t mean you want to do it until the day you die.

People who work for someone else often have retirement benefits through their job, but business owners don’t have that luxury. They have to plan for retirement on their own, which is why it needs to be on your radar. There are many different retirement options (401k, IRAs, etc.). Speak with a financial planner about which option is best for you. You’ll also want to look into the best way to fund your retirement plans. Since you don’t have your employer contributing, learn how you can contribute the maximum amount.

4. Plan for your current business needs.

As a small business owner, you have a lot of financial responsibilities. You aren’t just responsible for making money; you’re responsible for taxes, employee wages, business assets, and the list goes on. Here are a few things to keep in mind when you’re planning for your business:

Taxes

Taxes should always be at the forefront of your mind when it comes to business finances. You should always be setting aside at least 25% of your income for taxes. You also need to make sure you’re paying estimated quarterly taxes.

Different business entities (sole proprietor, S corp, LLC, etc.) all have different tax responsibilities. Make sure you know what your business entity requires. An accountant can help you determine how much you need to be setting aside for taxes according to your business type and can help you strategize how to maximize your tax return. If you have questions, reach out to our team at Vyde USA. We specialize in helping small businesses save time and money on their accounting, bookkeeping, and taxes.

Business Costs

When you are planning finances for your business, you need to factor in the cost of doing business. Every business has expenses, whether that be the expense of creating a product, employee wages, rent, equipment, etc.

It’s important that you find a way for your revenue to outweigh your expenses. Without that, you’ll never have a successful business.

Succession Planning

Setting up a succession plan, which includes strategizing around how to develop and grow future leaders in your company, should be a part of your financial planning. Although it doesn’t directly relate to finances, it can carry a lot of liability. You’ll want to make sure that your business has a succession plan for a number of scenarios: business partner leaving the business, death of a business partner, retirement, expansion, etc. No matter what the situation is, you’ll want to have a plan in place so that your business doesn’t suffer. Learn more about succession planning in this informative post. 

There are a lot of other aspects of financial planning that small business owners should consider. It’s best to go over these with a professional to ensure you don’t overlook anything crucial.

Deciding on Your Business Structure

How to Know If Your Small Business Needs An Accountant

We talk with clients everyday about their business and we love it. As accountants, we spend a lot of time with the books and we love the numbers and details, but we get that not everyone does.

Part of growing your business is knowing when to pull the lever to hire a professional rather than continue to DIY things yourself.

So when is the right time to hire an accountant? We’re glad you asked.

talk with clients everyday about their business

When You’re Deciding on Your Business Structure

Hiring an accountant when you’re first starting out might seem a little premature. But you’ll want the financial advice and wisdom that comes from a seasoned professional as you figure out the type of business structure, or entity, that you need to set up for you business.

An accountant will be able to provide you with the ins and outs of each business entity type and help you formulate which one will be best for you and your company in the long run. Additionally, they’ll be able to help you manage your money as you set out to establish yourself. If numbers aren’t your thing, we highly recommend at least sitting down with an accountant for an hour or two to hash out the starting details and a gameplan for your first year or so in business. Then at that point, you can reassess to see if outsourcing your finances to an accountant and bookkeeper is a better fit.

When Things Get Complex & You’re Ready to Delegate

So you’ve DIY’ed it so far and it’s been just fine. As you start to grow your biz and things become more complex you might find that you lack the time to keep a handle on your finances along with all the other aspects of your business.

Hiring an accountant as you enter this more complex stage is a great idea. They can help you move from a side hustle or brand new biz to a more complex one that’s investing in growth and the future. Don’t feel like it’s a statement about your ability to juggle it all, rather celebrate your success and hire that accountant to help you fast track to the next level.

When You Have To Deal With The Government

Everyone, and we mean everyone, feels that pit in their stomach when they hear IRS. Hiring an accountant when you have to work with the government, and even before, helps gives you peace of mind – and accountants are good for more than just managing an audit or keeping you safe from one. Accountants should also be able to help you with:

  • keeping you up to date with the most recent tax law
  • keep your company’s status updated in the gov’s company register
  • handle your payroll and ensure that dealings with employees are documented and done correctly
  • complete and file all legal paperwork and compliance documents for your business

Applying for a Business Loan

When You’re Applying for a Business Loan or Looking for Investors

So your business is growing and you’re looking to expand even further. But it takes money to make money and the type of capital you’re looking for is going to have to come from a bank loan or an investor.

Banks and investors like to see that they’re going to get a good return on the money they loan out, and an accountant will be able to showcase that your company is a good bet. Accountants can help you prepare the paperwork for the loan, choose the right type of loan, and even pull together the records that you’ll need to show how impressive your business is so that you’re a shoe-in for getting that loan.

Have additional questions about hiring an accountant? We’d love to chat.

FAQs about Hiring an Accountant for Your Business:

When is the right time to hire an accountant for my business?

It’s advisable to consider hiring an accountant when you’re deciding on your business structure or when your business operations become too complex for you to manage effectively on your own.

What role does an accountant play in deciding on a business structure?

An accountant offers valuable financial advice regarding different business entity types, helping you understand their implications and choose the structure that aligns best with your business goals and financial situation.

When should I involve an accountant in dealings with the government, such as IRS matters?

Hiring an accountant when you need to engage with government agencies, including tax authorities like the IRS, provides peace of mind and ensures compliance with tax laws and regulations. Accountants also assist with tax law updates, payroll management, and legal paperwork.

How can an accountant assist in securing business loans or attracting investors?

Accountants play a crucial role in preparing loan applications and financial documentation for investors. They help showcase your business’s financial health, choose the right financing options, and ensure compliance with regulatory requirements, increasing your chances of securing funding.

What additional services can I expect from an accountant beyond financial management?

Besides financial management, accountants offer expertise in tax planning, payroll administration, compliance management, and financial forecasting. They serve as valuable advisors, helping you navigate complex financial decisions and optimize your business’s financial performance.

How To Tell If You Need Help With Marketing

You’ve got a small business. You’ve got a great product or service. You may even have a pretty steady cash flow and are doing ok growing your business. But what do you know about marketing – and even better, what are you doing about it?

Knowing when you need marketing help for your small business or side hustle is a pretty complicated decision. And there are a lot of options for what type of help you may need – a consultant, a little research online and time set aside to put your findings in action, or hiring a full-on marketing person to help you grow your business.

So how do you know if you need marketing help and what kind? We’re glad you asked.

Social Media? Why Would I Need That?

We’re joking – slightly. You probably do know what social media is. But do you have business channels on all the major social platforms for your business? Are you posting regularly and interacting with your followers? What about building a community amongst potential buyers/clients?

Even if you don’t sell your product online, it’s probably pretty obvious that you want to have a foothold in the online world because people turn to the internet for information and they turn to social media channels for recommendations from friends and other trusted sources. Having your business show up in a professional way on the major social media platforms makes it easier for them to find you and for their friends to recommend you. Being consistent in your posting and interactions on those platforms tells potential clients that you’re on top of things, that you’re invested in your clients, and that you, your product, and your services are a good pick.

I Don’t Have Time for That

We hear you. Figuring out what type of marketing help you need is only half the battle. Keeping up with it all is the other half and it’s almost impossible to do sometimes along with running your business. Many small businesses hire a part-time or contracted marketing person or social media manager. You may even find that there are virtual assistants that will maintain your accounts at a fair price.

Our recommendation is that you take a few minutes to research what you might need online. Then start looking for those experts we mentioned above and their cost. Based on your needs, you’ll be able to find something that fits your budget and saves you time. Make sure you understand what you’re getting and how it will help – whomever you hire should be able to explain all that, if they can’t they’re probably not a good fit.

Marketing Plans, Mission Statements, Logos are Not Your Thing

Not every small business owner is a creative – we’re accountants, so we totally get that. But having the creative/marketing side of things  is a need for your business. Marketing plans and mission statements are a way of keeping your eye on the prize and are essential if you’re looking for investors to help you grow your business.

When it comes to logos, brochures, websites, and more – DIYing it may take more time than it’s worth. Hiring a marketer doesn’t necessarily mean they can accomplish all these tasks themselves, but it does mean that they’ll have connections with those who can and that they’ll have a good understanding of what you’ll need and what it should cost.

What other questions do you have about marketing? Tell us in the comments below.

Learn how to set up a website for your business with step-by-step guidance on domain registration, hosting, design, and essential features.

How to Set Up a Website for Your Business

Make the Failure Work for You

As a business owner, you spend a lot of time finding and presenting your business to the right customers. You spend hours meticulously arranging your products, perfecting your pitch, or figuring out how to connect with your clients to close the deal. These are all important ways for you to present yourself to your clients. However, you may be missing a strong online presence. 

A clear, comprehensive website can propel your business forward by creating an attractive experience for new customers and by reaffirming your business’ brand, objectives, and mission to your existing customers. A great website can also make it easier for new clients to purchase or request information online—saving you time and money.

Here’s how to set up a website for your small business:

Choose your platform.

There are many great platforms to build websites on. If your website needs are pretty basic, I suggest looking into a platform with lots of pre-built templates (ie. Wix.com.) For whatever platform you choose, sign up for an account and look through the different templates that are available. Ask yourself: How do I want the website to look? What types of pages do I want to include (See #4)? Remember, you can edit things like images, colors, and text, so focus on the layout. 

Secure your domain.

You’ll need to secure your website domain—where your site will live (ie. www.mybusinessname.com). Most website platforms will also include hosting, but you can host your domain externally. If you already own your domain—great!— you can connect it to your account. If you don’t own a domain, you’ll need to check the availability of the one you want and purchase it. 

Determine your brand.

If you have a brick and mortar store, chances are you’ve stuck with a theme as you’ve decorated, designed your logo, and presented your products. These things apply to your overall brand. Your website should reinforce your brand and create a seamless transition between your online and in person experience. Stick to the same color scheme, ambiance, and fonts that you use everywhere else in your business. Think of the way you want customers to perceive your brand: quality, fun, trust, high-end, affordable, etc. As you’re editing your template, make sure all the wording, imagery, and information support this brand perception. 

set up a website for your small business

Create the “Fab 4”.

There are four pages that every business website should include:

Home

Keep your home page clean and simple with compelling images that support your brand, a short blurb, and a call to action. When you are designing your website, make sure to have your call-to-action front and center. Think of what you want the customer to do when they get to your home page, then make it as easy as possible for them to accomplish that goal. Remember, this is your customer’s first impression of your online presence, so make it count.

Product/Shop

Whether or not your products/services are available for purchase online, you should have a product page that explains your offering. This page may contain an explanation of services with a form to fill out, or it may be a shopping cart where people can purchase. Either way, keep the experience clean, compelling, and concise.

About/Mission

There’s a driver behind each business—a reason why a business exists. Your website gives you the opportunity to tell your story, your mission, and your why. Create a page with a short explanation of why your business exists. Here’s an madlib to get you started:

“Business Name exists to help customer type with problem and we do this by services.”

Contact

Your customers should be able to get ahold of you. Have a page that includes contact information—the business address, and phone number.

Make sure each of these “Fab 4” pages have links on your navigation bar so that your customers can easily access them.

Test everything

Before you launch your website, make sure to test everything you can. Check for broken links, broken pages, and anything else that could make it hard for your customers to navigate.

Test everything

Frequently Asked Questions:

1. Why is having a website important for my small business?

A website is essential for your business because it helps you present your brand and connect with both new and existing customers. It offers a professional online presence that can increase customer trust and facilitate easier transactions. A well-designed website can save you time and money by allowing customers to learn about your products or services and make purchases or inquiries online.

2. What website platform should I choose for my small business?

The platform you choose depends on your business needs. If you need a simple website with minimal setup, platforms like Wix.com are ideal, as they offer easy-to-use templates. If you need more customization or advanced features, you might want to explore options like WordPress or Shopify. Regardless of the platform, focus on selecting a layout that reflects your brand and goals.

3. How do I secure a domain for my website?

To secure a domain, you’ll need to choose a domain name that represents your business (like www.mybusinessname.com). Most website-building platforms offer domain registration services, or you can use external providers like GoDaddy or Namecheap. If you already own a domain, you can connect it to your website platform. Ensure your chosen domain is available and aligns with your business name.

4. What are the essential pages I need on my business website?

Every small business website should include these four essential pages, known as the “Fab 4”:

  • Home: A clean, welcoming page with compelling visuals and a clear call to action.
  • Product/Shop: A page that explains your products or services, with a form or shopping cart if applicable.
  • About/Mission: A page that tells the story of your business and its mission, helping customers understand your “why.”
  • Contact: A page with your contact details, including your business address and phone number, to make it easy for customers to reach you.

5. How can I ensure my website is ready before launching it?

Before launching, thoroughly test your website to make sure everything works properly. Check for broken links, missing images, and any other issues that could affect the user experience. Make sure that all your pages load correctly, forms work as intended, and navigation is smooth. A final review will help you ensure your website is professional and user-friendly for your customers.

 

Pay Yourself as a Business Owner

The Best Way to Pay Yourself as a Business Owner

Knowing how to pay yourself as a small business owner may seem simple, but there are quite a few options when it comes to doing it right. The information below will help you learn the basics of how to pay yourself as a small business owner, but we highly recommend talking to a tax or financial expert (we’d love to chat with you!) when it comes to the specifics of your business.

Establish Your Business Type

Before we get into the money side of things, it’s important to know what type of business entity you have so you know what your options are for getting paid. Because you’re the owner of your small business, it seems simple enough to just withdraw money from your business account and go on your way – but selecting the best way to take your pay and being consistent with that method will make things easier in the long run when it comes to the financials.

Business entities include, sole proprietor, LLC, or a partner in a partnership. You’ll want to verify which entity type you have if you don’t know already and then read on to see what options you have based on your business type.

Salary or Draw?

If you’re not quite sure what the difference is between a salary or a draw, we’ll tell you.

A salary is a fixed amount being taken out each pay period.

A draw, also known as a owner’s draw refers to an owner taking funds out of the business for personal use.

The benefit to the salary option is that tax withholdings and benefit payments come out of your gross pay automatically, whereas with a draw they don’t. A draw of company profits is taxable income on the owner’s personal tax return, and owners are required to pay estimated tax payments as well as self-employments taxes on draws. So additional personal tax planning may be required to make the draw method a benefit.

Another benefit to a draw is that a business owner can not only withdraw profits generated by the business, but also can take out funds that were previously contributed to help run the company. Many new business owners who are just starting out choose to use the draw method because they can pull additional funds they originally invested if needed while they work to build their company and build a stable monthly income.

Knowing which option is right for you takes looking at your personal circumstances and the happenings within your business. If you’re not sure which option provides you with the best advantage – that’ the time to seek out expert advice. 

How Much Should I Pay Myself?

No matter which way you decide to pay yourself or even what type of business entity you have – the most frequently asked question we hear is How much should I pay myself? And that’s a very good question.

When it comes to deciding how much to include in your paycheck you need to think about the the amount of money that is needed to keep your business operations moving forward as well as if you’re willing to do more personal tax planning by using a draw method rather than paying yourself a salary. Weighing your options will help you decide which is the best fit and also help you decide just how much you’re willing to pay yourself so you get the most benefit.

What other questions do you have regarding paying yourself as a small business owner? We’d love to chat and provide you with custom advice unique to your business. 

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Vyde is a licensed accounting firm (CPA) based in Provo, Utah, and members of the AICPA. We provide professional accounting services to businesses and individuals, with a focus on small business bookkeeping and taxes.

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