How to Organize Your Finances as a Solopreneur – The Zero-to-Hero Guide for Small Business Finance

organizing business finances

As of 2020, there were approximately 42 million people who identified as solopreneurs (the group of people we call sole proprietors and entrepreneurs). The challenges they face within their businesses are different, but the ones they face with their small business finances are often the same. These include: 

  • No separation of personal/business expenses 
  • Deductions
  • Saving for taxes 
  • Invoicing
  • Working out of many payment accounts, like Venmo
  • Lack of payment method and consistent payment policies
  • Not getting paid on time 

In order to succeed, it’s important for you to have a handle on organizing your small business finances and payments from beginning to end. While you may luck out and flourish despite poor money management, inevitably, most new businesses will fold within the first 10 years.

Money Management for Small Business Finance—3 Quick Tips

While solopreneurs are individuals, it’s still important to separate your business and personal expenses. The best way to do that is to have separate accounts. Not only does it keep you from commingling funds, it helps you with accountability and taxes at the end of the year. Let’s take a look at a few money management tips.

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“It’s important to separate your business and personal expenses”

Tip #1: Separate Personal and Business Accounts

Separate accounts are a must, and ideally with the same company. This makes it easy to not only track business expenses without wading through a ton of personal expenses, but also transfer money between accounts when necessary. 

For instance, as a solopreneur you’ll often work alone, or hire contractors for larger jobs. You won’t have a business partner or stockholders to pay out, so the profits of a business are yours to claim. Transferring profits to personal accounts is easy when you bank with the same company. Plus, in many cases, such as when using banq.com, it’s not necessary to have a tax ID or business license to open up a separate business space for all of your solopreneur-related accounts.  

Tip #2: Use Business Cards for Expenses

Business credit and debit cards should always be the go-to for business expenses because it allows you to keep the transactions in one place, which, come tax time, (more on that later) makes it easy to calculate and list deductions. 

For example, when you sign up for banq, you can have a separate debit card for each of the accounts and subaccounts you create. Plus, good business payment cards have downloadable statements that can further organize your solopreneur finances.

In the absence of a business account, designating a single credit card for business use is a good substitute.

Tip #3: Apps, Apps, Apps

It’s a great idea to take advantage of an app that’s made for organizing business payments, such as banq. You’ll also have many other online apps to choose from to help with your business finances: there are many that cater to multiple business types, from real estate investing down to craft-based endeavors. It’ll be worth an exploration, so you can ditch the old-fashioned pen and paper method and keep everything centralized. 

Look for apps that suits your business’s needs. You’ll need technology to categorize your expenses, as well as organize revenue streams and other financial flows. Payment apps like banq make it easy for you to separate expenses by using different accounts for different clients or revenue streams.

Setting Financial Goals for Your Business — 5 Essential Rules

Every business wants to turn a profit, but what are your specific goals? This is something that you need to think about. Do you want to make enough just to live? Probably not—you’ll want disposable income, as well as enough of a margin to allow you to invest and build something of value. Here are some of the best practices to implement from day one.

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“You’ll want disposable income, as well as enough of a margin to allow you to invest and build something of value”

Rule #1: Decrease Unnecessary Spending

What’s classified as unnecessary spending? Buying something you don’t need to get the job done. For example, don’t buy the hottest new technology “just because”—make sure it fits within your budget. More importantly, make sure it increases your efficiency. If it’s just a fancy new gadget that’s not going to save you time or money in the long run, it’s unnecessary.

Along with saving money, spending can be justified when you know it makes you more than you spent. But whenever you go that route, you should have a clear idea of how much your expense will make you back. The rule of thumb of a positive return on investment applies to all expenses, large or small, regular or one-off.

Rule #2: Keep Fixed Costs Low

Fixed costs are those that do not change from month to month; they remain consistent, so you know what you’ll be spending when the bill’s due. Among all spending types, fixed costs are the highest level of commitment, and the heaviest load that slows you down when you’re low on cash. One way to keep fixed costs low is to work from home where possible. A physical office may seem more reputable to some people, but it’s a drain on resources, especially when you’re first starting out.

If you can’t work from home due to lack of space, consider an office add-on to your home, rent a lower-cost warehouse space, or get a spot at a co-working space.

Rule #3: Determine How Much You Want to Make

This figure should include all the ways you can build up your business. Don’t just make enough for yourself to pay the bills. Price and budget in a way that allows you to hire help, save for tough times, or invest into better systems. The way to do this is to craft a business plan that accounts for all these factors. A specific revenue goal will be a key metric in your business plan.

Rule #4: Establish Your Profit Margin

Setting a goal is one of the best things you can do in business because it gives you something to strive for. One of the popular theories in the book Profit First is to establish your profit margin first. The idea is, you only spend money once you’ve realized this level. 

Why? Because according to the author Mike Michalowitz: “Businesses are run by humans, and humans aren’t always logical.” In solo business, we often forget that we need to be stern about a profit margin first if we want to build up our operation. We tend to be too lax about letting money leave the bank before we take care of our own pay. But without healthy pay or profit, the operation won’t last or shape up into something worthy.

Throwing away the conventional method of accounting can help you grow profits beyond your expectations, because you’re not yielding to the typical formula. 

Setting a profit margin also helps you set prices for work and goods, setting the groundwork for success from the bottom up.

Rule #5: Get Organized AF

There’s getting organized—having your papers and accounts in order—then, there’s getting organized AF. What does that entail? Good question!

In order to have a clear view of your cash flow, you need to have clear, outlined records of each type of revenue stream. Do you own rental properties? Great! Don’t just bundle all receipts together: know exactly how much you’re making and spending on each one. That means having a separate account for each property, including rental deposits and expenses related to the property for accountability.

If you have a crafting business, such as jewelry or metal making, you’ll want to know exactly what it costs you to run the business. How much are you spending on supplies and equipment? These should all have separate totals so you have a clear picture of where you’re spending. It can also help you identify ways to cut spending or invest.

No matter what small business you run, you need a full picture of where your money is coming from, compared to where it’s going to. You need to know which projects make you the most per hour or day of work. To keep an overview of all this, organize your finances per project or account.

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“You need a full picture of where your money is coming from, compared to where it’s going to”

Once you’ve gotten your accounts organized individually, you’ll have a better overview of your cash flow. It’ll open avenues to help you achieve your financial goals, because you’ll be able to strategize and streamline—two very important “S” words that, when used properly, lead to a third: success.

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Use the Right Tool, Get Organized AF

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Know the Different Types of Banking

There are different types of banking options available to solopreneurs. It all depends on the level of revenue streaming in.

Business Checking/Savings Accounts

Every business should have a checking and/or savings account. Even if you have a personal account as mentioned above, having a business account—or at least a separate one for running your company—is a must. The sooner you set up separate accounts, the better. 

Business Credit Cards

Now, this doesn’t have to be a business credit card, per se. It can be one you’ve earmarked for business use only. However, once you’re established and have a steady income, applying for a business credit card can help in more ways than one. 

First, the limit is often higher than those on a personal account. Second, they offer more rewards such as cash back or discounts at specific stores, which can save you money on supplies. 

Brokerage

Why a brokerage account? Why not? As a solopreneur, you’re 100% responsible for your future (read: your retirement). A brokerage account is a great investment for your personal and business life. It allows you to buy specific types of investments such as stocks, mutual funds, and bonds, to name a few. You can use your gains for large purchases, such as critical business tools or equipment that will increase your revenue streams.

You can also leave your money in your investment account and not touch it until you retire decades later. This would allow you to withstand market fluctuations, enjoy the magic of compound interest, and form a strong financial habit.

Neobanking 

A neobank is digitally run, eliminating physical branches and thus, offers customers cost savings over traditional banks. These savings are realized in lower interest rates, low or no monthly minimums, and lower transaction fees.

Neobanking even offers added convenience because neobanks truly build systems that can operate and interact fully online. Banking today can (and maybe should) come without the obligation of going to a physical location, without the waste of paper mail, without showing up within set office hours, and without having to spend time and gas commuting for simple banking operations.

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“Neobanking even offers added convenience because neobanks truly build systems that allow operating and interacting fully online”

Digital banks, while relatively new, offer the same protections as your local corner bank. They’re FDIC-insured and offer debit cards; many also offer credit cards. 

Neobanks, such as the one that the banq app is building to be, can also be more flexible in the requirements they pose. At banq, we’re backed by a trust company. That means that we fall under different regulations than a normal bank. For example, to open a business account or business credit card, some banks and credit cards require that a business makes $250,000 per year to qualify. banq does not. In the same way, crypto, crowdfunding, IRAs, or asset protection trusts are not typically covered by traditional banks since they do not have permission to hold assets of this type. banq does.

Use Payment and Banking Apps

We’ve said it before and we’ll say it again, because it’s that important. Use money apps that make your business run better, especially apps for the financial matters central to your business, including banking and easy payments in both directions. The banq app is especially beneficial for solopreneurs, because you can use the same app for payments and organizing finances so everything is visible right at your fingertips. Switching between accounts is simple, and organizing transactions easier than ever.

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“Use money apps that make your business run better”

Establishing a Budget

For any business, budgeting is a must. But remember, different types of businesses need different types of budgets. For example, someone working in real estate and renting out properties will need to keep a repair budget for when things go wrong or get damaged in a rental property.

Budgeting Case: Deposits and Expenses for Rental Properties

Rental owners are also legally obliged in most states to have a separate account for rental deposits from the different renters. With the right tool, like banq.com, you can:

  1. Store the money in a separate account made for rent deposits
  2. Organize the money into accounts made for the different renters
  3. Keep an overview of the money in and money out for each renter, and the rent income vs. maintenance expenses
  4. If desired, give the renters view permissions into their account space, so they can see how the funds are being used

It’s easy to look at a budget as a hindrance, but the opposite is true. Budgeting gives freedom, not restriction, because you gain control. How? It’s a map that outlines expenses and income, and is extremely valuable in the decision-making process. When budgeting is your habit, you know how much money you can spend, and avoid the internal conflict of spending it or keeping it. You disassociate yourself and your emotions from the decision and let the budget decide.

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“Budgeting gives freedom, not restriction — because you gain control”

Budgeting also involves investments and growth, which we’ll talk about more below. 

One of the main pillars of healthy finances is saving, and budgeting helps with saving. These savings then yield results as businesses can invest them to promote growth. So how do you go about setting a budget?

Determine Categories for Your Budget 

Your budget is going to be made up of two types of expenses: fixed costs and variable expenses. We’ve already covered fixed costs (those that don’t change for a specified period of time). Variable expenses are those that are difficult to pin down, until you actually spend the money. These may include:

  • Office supplies
  • Repair costs
  • Online tools & licenses
  • Website
  • Advertising
  • Business travel
  • Labor costs when not doing the work yourself
  • Coaching, consulting, & training

However, there’s one way you can get a general estimate if you’ve been in business for more than a year. 

Use Past Data for Future Predictions

Past data is valuable in helping you predict the future, as long as the amount of work you do stays the same. To get started, determine how much you spent last year and use this as a baseline for creating this year’s expense budget. Barring any significant changes, it’s a good jumping-off point. 

Allocate Income to Budget Funds Before You Put It into Profit Accounts

It can be tempting to list your income as profit, but the reality is, it’s not. Since you (hopefully) have a budget established, when income rolls in, it’s important to delegate it to your budget accounts first. Any left over then goes to your profits. This ensures you have money on-hand to pay expenses as they arise. It’s always good to have a cushion, too. You never know when those unexpected expenses may arise, just as they do in your personal life. 

Financial Organization Plan

Every business needs to have a financial organization plan. It can be simple or complex, depending on the business activities. The idea behind a plan is to determine your financial goals, then reach them.

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“Businesses that have a financial plan tend to grow revenue streams much faster than those who don’t.”

Here are some items to consider when setting up your financial organization plan.

Set Goals 

The first basis for your financial plan is to determine what it is you want to achieve. Looking to buy a house? Expand your business? Build a passive income source? What are your goals for today, 5 years from today and 10 years from today? These matter. 

Strategic Planning 

Strategic planning for solopreneurs involves drawing up a simple document. It outlines your goals and what actions you need to take to reach these goals. Steps in crafting this document include: 

  • Analyze business operations and identify problem areas. For instance, outdated machinery that works at half the ideal rate. 
  • Formulate a strategy. Following the above example, how can you improve production? Is there a software upgrade for the machinery, or do you need to do away with obsolete equipment and purchase a higher/better model?
  • Execution. Here is where you take action: upgrading or selling your obsolete machine for a down payment towards your new equipment. 

Strategic plans are converted into dollars to show how revenues—and thus, profits—grow from putting these tasks and jobs to work. If new machinery can increase your productivity by 25-50%, you’ll realize more profit in putting it to use.

Tracking

Spreadsheets are helpful, but so are—here’s that word again—apps. Today, apps help streamline everything on the go. For example, when you pick up supplies, you no longer have to wait to get home or to the office to record the expense. Snap a picture and automatically load it into the proper account. Apps are intuitive and imperative. Plus, you don’t have to worry about losing the receipt or forgetting to record it.

A financial organization plan is not a one-and-done deal. It’s important to do it each year. Goals and variables change, new processes come up, new business partners get involved. Make sure your bases are covered and prepare a new one at the start of every fiscal year. 

If you’re looking to create a financial organization plan, here’s a great template to get you started.

Financial Planning Consultant—Yay or Nay?

One of the things that may come up, whether in conversation or through research, is a financial planner. 

Do you need one? Maybe. 

Can they help? It depends on your situation and what you’re looking to achieve.

Who Is a Financial Planner?

A financial planner is an expert in the world of finance. They have experience in doing an overview of your business and crafting a plan to help you reach your goals. They’re able to look through the clutter and pinpoint where you can hone in and tighten up spending. 

There are a few different types of financial planners, and some specialize in specific finance avenues such as investments or taxes. 

When to Hire a Financial Planner

Most solopreneurs can go the DIY route when it comes to a financial plan. But if your business is complex and has a lot of different revenue streams, or you really don’t know the finance side of your business, it might just be worth the expense. Plus, it’s a tax write-off, so you’re putting your money to work for you where you need it.

The banq App

For almost anything you need to do in your life, you’re sure to hear “there’s an app for that!” It’s true, and some apps even make a huge difference for you. banq, for instance, is an intuitive app that simplifies your life and organizes your payments better than any other money app on the market. 

Organizing Your Money for Business Use

At banq, you can create an account for every business expense you have, which may include: 

  • Office supplies
  • Travel expenses
  • Supplies 
  • Labor

Have you ever thought about how it would be great to have money from your clients split into separate buckets, so that each bucket contains the money from the client and spent on the client? Keeping payments organized in this way is an easy way to manage cash flow and profit margin.

What about automatically putting payments for the few different types of services you offer into different buckets?

What about earmarking a received sum for the investment into your new website?

Organizing your money via bucketing and earmarking is an effective way to keep an overview of what your money is doing. The overview helps you control your expenses and know which parts of your work earn you the most, like if you had a CPA in your pocket who’s always there to guide you and help you organize your money better. Except, without having to pay for the CPA.

banq takes care of this via the creation of multiple spaces and unlimited accounts for revenue streams, savings, projects and activities. Earmarking is simple, categorization automated, transparency with your team high if desired, and privacy backed by the business model that does not monetize user data and ability to appear however you want on the app. 

Personal Use

Personal finance is just as important as business finance. Even as a solopreneur, you must keep them separate. But having two apps or two different banks is a real pain when you can have one, and better yet — both available on one login. 

banq lets you organize and manage both your business and personal payments without ever losing track of where the money came from, or what it’s supposed to be used for. It also allows you to accept, move, or send money while staying as organized as it gets. We like to think that it sets the high standard of a business finance app that’s like having a combination of a financial planning consultant, CPA, open-minded friend, privacy warden, and your biggest fan.

Over to You

Navigating your finances as a solopreneur doesn’t have to suck. It simply requires understanding the different elements and the impacts they have. By getting super organized with the help of the right tool, and by gaining a deeper understanding of your cash flows, you’ll be set up for success.