How to Handle Taxes and Finances as a Small Business Owner
A lot of small business owners are creative or have a passion that led them to set up their business, even a whiff of the word ‘finance’ can get them in a sweat! If that’s you, you’re not alone. Like most people, managing my finances is not my favourite part of my job, but it is an essential part. Luckily I do love a spreadsheet and a system so while I don’t love doing it, I have got into a pretty good routine to make life a little bit easier when April rolls around.
What should I be doing on a regular basis to keep on top of my finances?
Like anything, little and often is the best way to do it. I find that setting aside 15-30 minutes each week is all I need to go through and categorise all of my expenses, make a note of any mileage from the previous week and add photos of receipts to my transactions. If I don’t dedicate this small block of time each week, I’ll end up having to dedicate hours to go and backdate it (like I currently need to do for the first half of last year because I was not in such a good routine!) I personally have the same 30 minutes blocked out in my diary each week to keep me on track which I find really helpful. The other thing I do regularly is check on my business Monzo bank account so I know exactly how much is in there and how much is in each of my pots so there’s no surprises and I know exactly where I stand with my finances. I have all of my income go into my business account and then pay myself a set ‘wage’ each month into my personal account so this helps me to stay on track and know exactly how long the money in my account will last me.
What systems can I use to help me manage my finances?
As I’ve already mentioned, my Monzo business bank account is so helpful with its built in features for managing money and setting up automatic transfers into my tax, subscriptions and savings pots. I also use Dubsado for client management and this is where I autogenerate monthly invoices and I use the tools on here to know exactly how much money is outstanding from clients so that again I know where I stand and there’s no surprises. The final system I use is QuickBooks, I have it connected to my bank so that I can categorise each transaction, add photos of my receipts and track my mileage. I find having it all in one place is so handy and it has the categories pre-set so I don’t need to make up my own and then get confused what is what!
How can I prepare for unexpected expenses?
Pots (or spaces) on your bank account are a complete non-negotiable for me. I have three pots currently; One where I put a portion of my income each month aside for my tax bill at the end of the year, I put a bit more than I actually need in here so that I’ve got a bit of a buffer if anything unexpected comes up. My second pot is for subscriptions, I transfer a set amount in here each month so that when I need to pay for any of my systems, domain name, website or anything like that, I already have the money set aside to pay the annual cost which is usually a bit cheaper and then I can make sure that the monthly cost for that subscription is going back into the subscriptions pot so that come next year, even if the cost goes up slightly, I’ve already got it covered. I have an emergency salary pot where I save a little bit each month and any money from ‘extra’ projects I take on so that I can build up a few months worth of money to pay myself if anything were to happen.
When should I consider outsourcing my finances?
My finances were the first thing I outsourced. There’s so much to be said about the value of your time and outsourcing the things that don’t bring you joy or you don’t fully understand. For me, I can do my own self assessment and have done for the past few years but it fills me with dread, I have to read each question 4 times to make sure I’m not accidentally committing tax fraud and even after I press submit, I’m anxiously waiting for a letter in the post with a fine because I’ve got something wrong. Exactly this happened to me in my last business because we weren’t sent a specific letter that we needed as it was a partnership so we missed an important part of the assessment which resulted in almost a years worth of back and forth with HMRC, thousands of pounds of threatened fines and a LOT of time and stress to eventually get it all wiped off. So, lesson learned, I now have an accountant to help me manage my self assessment because, although I could do it myself, it’s not worth the time or stress!
Final thoughts
Like anything, good preparation goes a long way. Setting up different pots in your bank account so you can have money put aside for the expected, and unexpected costs, will save you stress and worry. Setting aside a little bit of time each week (or even each month if weekly feels too much) will save you time, and stress, in the long run when it comes to tax season. And finally, don’t underestimate the value of outsourcing! Just because you can do something yourself, doesn’t mean you should.
