~~Many business owners grapple with money management on an ongoing basis and admit to making mistakes with their finances. Cloud-based accounting software provider Freshbooks recently released the results of a survey — titled Self-Employed Professionals & Small Business Owners in America — which highlighted business owners’ money management concerns.1

According to the survey: 
• Almost half (46 percent) of small business owners say they should be managing their money better
• 28 percent have already made financial mistakes
• 28 percent say managing their business keeps them up at night
• 69 percent of small businesses regularly review their finances
• Just 47 percent of small businesses maintain a budget
• Just half of small businesses proactively reduce debt

"Every business has a natural ebb and flow, a rhythmical pattern of income and expenses," says Matt Baker, VP Strategic Planning at FreshBooks. "Sometimes it’s due to seasonality. Sometimes it’s due to the duration of projects and the contract terms. In any case, weekly and monthly financial reviews are an exercise in understanding the frequency and scale of your business operations and the extent to which your business may be growing or at risk due to clients who pay late."2

Successful small businesses do a number of things when it comes to managing their money that less successful business may be overlooking or not doing as well:

1. Regularly review finances. Don't just wait until tax time, fiscal year-end or for some other prompt to review your business finances. Take the initiative and review them on a regular basis. In fact, it's a good idea to create a schedule for when you will do so, and stick to that so you are constantly in the know and you don't get behind, which can lead to false assumptions.

2. Maximize tax write-offs and deductions. When it comes time to prepare taxes, the possible deductions3 related to the following should be kept in mind: vehicles, salaries/wages, contract labor, property rent, depreciation, supplies, utilities, repairs, insurance, commissions, advertising, travel, home office, legal/professional fees, meals/entertainment in some cases, rent on equipment, interest on indebtedness, employee benefits/retirement plans, and mortgage interest.

3. Establish an optimal business structure for liability and taxes. Different business structures have different tax considerations, and it's important to make sure you're utilizing the right one. Also, remember that you can change it down the line if you need to. BizFilings has some good information4 to help you make the right determination.

4. Save an appropriate amount of money for taxes. Make sure you keep track of all taxable income and all sales tax collected. Then estimate what you’ll owe federal and state tax authorities, and set aside that amount so you’ll be prepared when those taxes come due.5

5. Proactively reduce debt. There are plenty of ways to reduce debt, including communication with creditors/lenders, reducing your business expenses and operating costs, and working with your bank to consolidate higher-interest debt into a lower-interest loan. Make debt reduction a priority so you’ll have more working capital to build your business.

6. Pay yourself a salary from your business earnings. You can set your salary as a percentage of profits, seek advice from other owners, or simply consider what you would be paid by an employer in the open market for the time and services you're putting in. When it comes to successful money management, paying yourself based on earnings is generally the smart way to go.

7. Maintain a budget. When it comes to budgeting your small business, Freshbooks recommends tallying your income sources, determining fixed costs, including variable expenses, predicting one-time spends, and pulling all of that together into a budget.6 Click here for a NevadaSmallBusiness article on setting up a cash budget for your business.

While there are clearly quite a few things that small businesses can (and should) be doing to better manage their money, survey results indicate that many have a long way to go to be truly efficient. On the bright side, running a business can teach people a lot about finances. Seventy percent of survey respondents say they’re better money managers (in both business and personal affairs) than they were prior to running a business.


1. https://www.freshbooks.com/_themes/freshbooks/brand-assets/freshbooks-survey-2017.pdf
2. https://www.entrepreneur.com/article/293662
3. https://smallbiztrends.com/2016/02/top-tax-deductions-for-small-business.html
4. https://www.bizfilings.com/toolkit/research-topics/managing-your-taxes/compare-tax-considerations-by-business-type
5. https://nevadasmallbusiness.com/tips-for-dealing-with-your-government-paperwork/
6. https://www.freshbooks.com/blog/the-5-step-plan-to-creating-a-balanced-business-budget


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.