How to Create a Financial System for your Business

Having a financial system for your business is crucial for business organization, knowing your numbers and running an efficient operation positioned to thrive. I am not a financial professional but I do have a thriving business, I have done it the hard way plus I have earned a Bachelor’s Degree in accounting and I’m happy to teach you what I have learned so you can avoid my mistakes. I am also a slight math geek, I think because my inner control freak loves the stability of numbers but if you’re not, that’s OK! I promise this is a system you can follow.

What system? A financial management system.

There is an easy way and a hard way to run your business finances.

Can you guess which way I started? Yup..

I thought I knew what I needed to do. After all, I have a degree in accounting (insert smirk here).

I wrote everything down in my handy, dandy notebook. I filed all my Paypal payments in a folder in my email. In the beginning, money was errr… less than steady – so anything that came in was transferred into my bank account and used for supplies or groceries.

I kept all my receipts organized by month. I even totaled up my income and expenses each month on paper.

Then it came time to filing my year end taxes. I had my numbers but I had no idea what to do with them. I just had numbers, not categories of spending, not profit magins and there were lots of other blanks I was struggling to fill. I had to work backwards month by month, which was a huge pain. So let’s take it from the top:

Step 1: Set up your business

Check with your local County or Town to find out about registering your business as a d/b/a. My first business was Jackie Lopez d/b/a (or doing business as) Jackie’s Dragonfly Designs. You may choose to register as a sole proprietor or LLC later, but a d/b/a is an affordable way (I paid $35) to establish your business legally.

Once you have your d/b/a certificate you can register with your State to collect and remit sales tax. Businesses that offer services and retail products are usually required to collect tax but before you are legally permitted to do so, you must obtain the appropriate Certificate of Authority as its referred to in my home state of New York. You will be required to thereafter file quarterly or annual sales tax returns. Check with your state finance department for your local rules.

Sales tax can be a beast. I almost didn’t pursue my business because I was afraid of sales tax, but, with proper systems in place, sales tax becomes a breeze. Keep reading.

Step 2: Business Banking

Now that we have our business entity, it’s time to take your certificates to your bank of choice and open a business checking account. I was able to set up a business checking and savings for free at my local credit union in about an hour and left with a debit card and starter checks.

Having dedicated business accounts makes it super easy to see where your business stands and total up your income and expenses. When Paypal or Etsy payments came in, I directed them to my business account. I use my business account to purchase postage and supplies. These are reliable records I can follow.

If you’ve started the hard way like me, don’t panic. Start where you are and begin to sort your transactions. Get a business bank account and start today where you can.

Step 3: The System

Now that we are official and have a handle on our business assets, we need a system to maintain it. There are several ways to do this so pick one and commit to it. The secret to success here is next level organization.

The Notebook System – I still use my notebook for order tracking and production schedules but as a financial management system, it is lacking. So if you love your pen and paper like me, you can keep it, but it’s time to pair it with a spreadsheet.

Now despite loving math and numbers, I hate spreadsheets. Despite hating spreadsheets, I have created a basic Profit/Loss Sheet (Income less expenses = profit) and a Gross Margin Sheet (Cost of Goods Sold – revenue) and I encourage you to do the same. It does not have to be fancy and you can surely google around to find a form. Or if this sounds like an inhumane form of torture, you can head over to Paper + Spark and grab her spreadsheet templates. They are tailored and awesome.

In fact, you can run your entire business with the right spreadsheets an Paper + Spark is a great resource. If you’re spreadsheet savvy, you can absolutely create basic templates. You’ve got this!

Done For You Recordkeeping – If all of this sounds terrible, perhaps a service like QuickBooks or Mint.com may be for you. You will have to input your information and, well, garbage in, garbage out, but once you do the work, you will have a fully automated system ready to use and grow. A huge bonus to this system is sales tax is kept track of and calculated at the press of a button. Spreadsheets will too, provided you entered the data. As a matter of fat, most online sales systems will help you account for sales tax and it is worth investing in these sales systems. At a minimum, review your local county and state rules to inquire about your requirements to collect and remint sales tax (different than end of year income taxes) and obtain your permit to do so.

These are the basics but depending on your business structure, additional steps may be required. When we are just beginning our entrepreeneurial journey it is easiest to keep things simple with minimal fees and reporting requirements.   

The good news is, we are in control. You control your business and its structure and you can change it and modify things to suit your needs.

What may be next?

-Decide how you will take payments in person and online.

-You can now open or convert your Paypal to a business account. This will allow you to send invoices, add items to a virtual shop or create buttons for check outs and subscriptions. Yes, Paypal takes a fee, but this fee becomes a business expenses to use later to offset business income for tax purposes. You with me?

-Sign up for a Square account and get a card reader and free processing with this referral link

Note: I also receive free processing 🙂

-Upgrade your social media accounts from personal to business to unlock analytic data about the performance of your content.

Keeping payments and expenses all in one place, organized and up to date is crucial to a successful system. That is why I do not accept payments by CashApp or Venmo (although they now have a business account option) or FB Pay, because these additional methods create more leg work for me. It’s more to keep track of, which means more time and more spreadsheets. Yuck!

No need to create more work for yourself. Keep it simple.

Maintain it…

Now that you have your business set up, registered and your financials in place, we need a system to maintain it. Here’s what I recommend:

-Do your business bookkeeping weekly

This includes things like recording transactions, expenses and checking for unpaid invoices.

-Review your numbers monthly

It’s important to know where your business stands, how much cash you have available and whether you’ve hit your goals.

-Save monthly for your quarterly taxes

Saving for taxes is just smart.

-Pay yourself each month

We are in business to make money so do not forget to pay yourself.

-Do an audit seasonally or at least annually of your business spending

Check your spending and be sure to be purchasing supplies at wholesale, tax free, when applicable. You can apply with your new d/b/a certificate.

Know Your Numbers

Keep track of your earning and expenses. Tally your sales, costs and cash each month. Calculate your return on investment and profit margins. This is important! In the beginning of my business journey, I was making sales but not turning profits. Knowing your numbers is key.

If your business doesn’t have enough left at the end of the month to pay you and you haven’t made any large purchases, you may be over paying for supplies or need to look over your gross margin sheet with a magnifying glass. This step can sound overwhelming but it;s what business owners do. Be the CEO. If you are struggling, get the help you need. The struggle is not required my friend. Hire a professional, call your accountant, invest in software, download a spreadsheet, do what you need to do. You are worth it and you will thank me later.

Whether you are an online business or sell from a physical store, I hope this has provided you with a framework to get started for success. I’d love your feedback so please feel free to drop me a comment and let me know how you feel about tackling your business financials.