5 total beginner tips for understanding and managing small business finances

Pursuing your passion to create is one thing. Getting paid to share it is another. Launching a small business is often a one-stop shop in the start—from the obvious product creation to marketing to finances. Learning business finance for beginners is a skill set that can set you apart from the rest of the online course community.

Understanding the art of managing your own business’s finances is essential for small business owners. However, it’s also a great way to understand revenue opportunities, cut overhead costs when possible, and discover opportunities to scale.

With these five helpful tips, we’ll lead you through small business finance for beginners. In turn, it will help to build a solid foundation for your business to grow in the future.

1. Make it official and open a bank account

At first, it may seem unnecessary to open up a professional business bank account. However, it’s a crucial step in small business finance management—especially when it comes to keeping personal and business finances separate.

Once you have your Employer ID Number, open an account. You’ll use your Employer ID Number during tax season, and it will act as your business ID. Start by opening a business checking account and add a savings account. This will aid in organizing funds and planning for taxes.

However, be sure to shop around for accounts. Business checking accounts have higher fees than individual accounts. It’s important to compare fees closely when shopping for a bank to meet your business needs.

Separating your business expenses on their own account or credit card make them much easier to track. This also isolates business expenses, which may be tax-deductible come tax time.

Mixing personal and business expenses can get messy. It’s possible to even lead towards legal disputes if you don’t uphold the corporate veil, so it’s best to simplify things. But always consult a lawyer and financial expert when dealing with matters of personal and professional liability.

2. Master smart spending to build your credit

You’ve got to spend money to make money—or, in this case, spend money to build credit. Everyone has a personal credit history, which lends to your personal credit score. For a small business, having a business credit score is just as, if not more, important if you have plans to make purchases that require financing to further your business’s future.

Your business credit score will determine whether you are deemed fit of credit worthiness and will help lenders determine whether, essentially, you’re able to pay back what you’ve borrowed. If you do have a poor credit score, it could make opportunities like purchasing insurance, finding real estate, and scaling your business a little more ominous.

Your best bet may be to focus on establishing your business’s credit early on in your business plan so you can raise that credit score to an acceptable level.

3. Get comfortable with numbers

Owning and operating a small business may seem idyllic from the outside, and in many ways, it is when it’s your passion. However, there are also the unseen tasks to owning a small business, such as bookkeeping and budgeting, that can seem intimidating or time consuming, especially when it comes to tackling finance for beginners.

Go back to budgeting basics

Budgeting may seem like an overt suggestion, however, there is a reason it’s recommended by so many financial experts in the game. Knowing where your money is going allows you to simultaneously see where you can save or cut corners.

Make a spreadsheet and start budgeting conservatively with additional slack. Always factor in some level of the unknown because there will undoubtedly be factors and unexpected elements—like a global pandemic—that you could never account for. When the time comes when you need to cut costs, consider categories that could be controlled to a large degree.

And don’t forget to shop around for both services, tools, and supplies because more than likely businesses will fight for your business (and, of course, save you some money).

Things to consider in your budget:

• Your monthly and annual expenses (email providers, tools, memberships and subscriptions, office space, affiliate payments)
• Any transaction fees or recurring payments
• Your own salary
• Your financial reserve or emergency fund

Ultimately your budget is more than a set of numbers to fill in each month. It is a guiding light that allows you to see opportunities to make more revenue, save, and even expand.

Become a bookkeeping pro

Outsourcing bookkeeping to accounting professionals is an obvious option. However, if you are just starting out it may be a slight stretch for your budget.

So if you have to start on your own, start with some basics like what exactly is bookkeeping. Bookkeeping is the process of recording and managing all financial transactions—sales, purchases, payments, etc.—for your business.

You can choose accounting software like Quickbooks to keep track or even something as simple as Excel or Numbers on a MacBook. Basic things to consider keeping track of are: assets, liabilities, revenues/income, expenses, and equity.

Although each business’s bookkeeping process won’t look exactly the same, these are methods commonly used based on your business needs. Always consult your accountant or financial advisor before making any major financial decisions.

4. Perfect payroll

You may be solo for a second, however, once it’s time to hire help you’ll have payroll perfected—from setting a payroll schedule to ensuring you’re withholding the appropriate amount of taxes. Also, don’t forget to include yourself in the payroll. Yes, you read that right.

Once sales start, you’ll need a way to accept those sales with a merchant account (an account that allows your business to accept credit card payments from customers) or via a third-party processor. Should you pick a third-party processor, just be sure to do your research as some processors charge flat fees for transactions, while others have a monthly membership model.

Those using either of Teachable’s custom payment gateways, Monthly Payment Gateway or Teachable Payments, can opt-in to BackOffice, which provides services such as automatic author/affiliate payouts. So if hiring an employee is out of the picture, start small and simple with a robust affiliate network. With Teachable Payments and BackOffice, we manage affiliate payouts for you every month and even make sure they have their tax forms in place, so you don’t have to.