Money Matters: 10 Money Management Tips for Small Business

Money matters because without it you are no longer in a business but supporting a hobby. Money management becomes a foundational component of any business success. Although you may want to focus on other elements of the business, you can’t forget about the money side of things.

In this article, we’ll talk about how to navigate the money matters even when the dollars and cents don’t make as much sense to you.

Getting your finances under control can free you up to focus on what you really want to be doing. Financial woes will wear you down – either because you have to take on projects to make up lost finances or because you rush existing projects to move on to the next money-making opportunity. Either path can leave you in a ditch.

Do right by your business and for your own wellbeing and take your finances seriously. A little investment of your time in a solid financial plan will leave you with a strong foundation for building your success.

Why Does Money Matter In Business?

Money matters in business because money makes the world go round. It’s the currency for bartering goods, services, and even the use of someone’s time. Without money, it is a struggle.

Without money, you will have to invest more of your time to get things done that could be addressed if you had more money. 

Without money, you have to find creative ways to make do with what you have instead of getting what you really need.

Without money, there is no safety net for when something goes wrong – or when something goes super right.

Money matters in business because money is needed to buy, to build, and to grow. 

What Does Money Matter In Life?

Money matter in life because it relieves the burden of owning others. You can’t be open about living out your possibilities when you are in debt to others. Instead, your focus has to be on meeting that debt or obligation.

With money, you will owe no one and be open to doing something because you love it and not because you have to have a paycheck to make the next payment.

With money, you can dare to dream and then make a plan to pursue that dream.

With money, you can find your happy place and then choose to live there.

Money isn’t the principle thing, but it will provide the solid foundation for growing up your principle thing. 

The Little Bits of Money Management

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

– from 1926 novel “The Sun Also Rises”

At the first of every year, I set about to save money for my family. I needed something that would work a little bit at a time because feeding three boys always left me feeling like I only had a little bit to give. 

One year, I found a plan that only required a penny. At least, it only required a penny the first day. From there, it built up. But even at the end of the plan, the giving was only a few dollars. All it took was one penny. If you put in one penny, and then two pennies, and then three pennies, from the first day of the year until the end of the year, you’d end up saving lots of money.

While the lots you save one penny at a time, by the end of one year of penny savings you will have collected almost $640. Little bits will add up in big ways.

Unfortunately, the little bits strategy works the opposite way as well. Little bits of bad decisions add up to big mistakes. Just like the quote suggests, you go bankrupt one penny at a time, and then all of a sudden you are bankrupt. To avoid the downfall of little bits and to embrace the increase of little bits, you are going to need a freelance money management or small business money management plan.

One of the first things most financial coaches will suggest when it comes to money management is to take an audit of your spending. For personal spending, it means writing down every penny you spend for several weeks to understand your spending patterns. These days, most of the spending is done digitally instead of with cash, so you can look back at your digital records and discover your patterns. The same goes for your business. Knowing how you are spending will allow you to get control of the little bits before they get away from you.

Planning Your Money Matters

1. Start With a plan.

You need a budget to keep your money matters in the black. Start by defining your expenses. Then you need to measure your income. If the expenses outweigh the income then you have to adjust and either cut expenses or make more money. It seems simple enough, but many small businesses are so busy trying to get by that they never stop to make a plan.

2. Don’t Go It Alone.

You need an accountant. There are so many laws on the books that you can’t expect to know it all – unless your business happens to be accounting. But even if finance is your business, having a second set of eyes to help you maneuver through it all can be a vital way to avoid missing something that leaves you in a mess.

3. Choose Wisely.

You not only want to good accountant, but you want one that is wise to what you are doing. It’s important to find a partner that will help you do better and choose better for your finances. Plenty of accountants will go through your receipts and fill out tax returns for you, but a better accountant will help you find ways to improve your process and save more money.

4. Ask Questions.

Never be afraid to ask why. When an accountant (or anyone in your life or business) tells you how you need to do something, learn more about the reasoning behind the process. Understanding will give you more standing when or if something comes up down the road.

5. Set Up for Success.

Take the time and make the investment to set up your business as a corporation. This will keep your personal finances separate from your business finances and will also allow you to set up some protection for your personal life from your business life. 

1. Do have a reason for moving money from your business to your personal account. Whether you are paying yourself a salary (from business to personal) or giving the business a cash infusion (loaning from the personal to the business), you want to have a well-defined reseason and solid records to back it up.
2. Keep solid records. Write it down in a ledger. Keep all receipts (dated and notated). Make it easy for others to understand. 
3. Do find out the rules, laws, and obligations for your corporation set up and adhere to them all. It’s better to have more information than you need and not need it than to not have something that it turns out you need. Be prepared and in line with what is necessary (and more).

6. Tap Into Deductions.

Work with your accountant to determine what deductions you can take in the new year and then keep records so you can take those deductions. 

1. Vehicle – keep up with your mileage and your expenses and then let your accountant help you determine what is the better way for you to deduct your vehicle.
2. Home Office – set aside a space in your home just for your office. Do the math to determine how big your space is and what percentage of the full square footage of your home is accounted for by that office space. Once you figure this, you can use that to determine how much of your home expenses can be deducted for your home office. 
3. Be Charitable – with money and with items. When it comes to time, though, you will not be able to deduct it from your taxes (although volunteering makes up for the time lost with joy and encouragement gained).

7. Spend Big 

At the end of the year, consider making big purchases for your business if you have a large amount of profit that will come with a big tax bill. You can use up all of your deductions at once instead of spreading them out over several years. Again, this is the reason you want to have an accountant that is interested in your business success. He or she can help you make better decisions when it comes to big purchases.

8. Have A System

You need to have a way to keep up with your finances that works for you and that is easily translatable to your accountant. Your accountant may have some suggestions or may have a system that can be shared. The most important thing is to have something you will work with or else you won’t’ ever put it to work. A system you won’t work is broken before you get started.

9. Employee Or Contractor

What’s the difference between an employee and a contractor? One of the simplest measurements is that if they are free to choose when and where they work, they are likely a contractor. If they have set hours and a mandated location, then they are likely an employee. Keep in mind that over the last year or so, the location has more and more become “remote.”

As an employer, it’s important to know the difference because the rules for how you compensate employees come with much stricter rules and guidelines. when in doubt, ask your accountant.

10. Dealing With The IRS

Nothing feels quite like being called to the principal’s office, or in the case of a small business getting the notice that you’re being audited. You immediately run through every scenario (real or imagined) where you might have done something wrong. 

Before you got into full panic mode, make an appointment to meet with your accountant and talk it through. Keep in mind that many audits are chosen at random and not necessarily because of any red flags.

More Money Matters Help

Managing money has always been a big challenge for freelancers. But don’t be intimidated—it’s all about what you do: [pullquote]Money management is 5% knowledge, 95% behavior.[/pullquote]

• Understand the basics of freelance finances.
• Remember to prepare for tax time.
• Get schooled by Budget School founder Phylecia Jones in our webinar, “How Freelancers Can Stop Sucking at Budgeting.”
• For more details on tips and questions, watch our “Ask the Accountant” webinar with veteran accountant Joanie Gable.

The key is to get started now.

Why Is Money Important?

Money is important, but only as a tool. It is used to do more and be more in your business. But when money becomes most important, it will begin to pull you down and tire you out. There has to be a balance between heart and pocket. You need the money to make things go, but you need the heart to keep going.

Having a good grasp of where your money is going and what you are doing with your money will help you maintain that balance.

Don’t wait to get your money in order at the end of the year, or just before the tax bill comes due. Now is the best time to deal with your money matters. Moving forward, schedule some time at the end of each month to review your financial journey and to make certain your money system is working in a way that works for you.

Wrapping Up

You need a plan for what you will earn and what you will do with those earnings. Your plan should include a budget that balances your income and expenses. It’s important to have someone else join you in your financial journey, which is why you want to find the right accountant that will help you make the better choices for your business success. 

A strong business had a solid financial base. Without a positive money flow to your business, you are really financing a hobby.  But the more you learn about money management the more you will understand how money matters for your business success.