Last week I began a new series called RAISE THE BAR, encouraging you to up-level your business and show up as the professional you are.
I talked about the all-too-common new business stressor: the cost of taking credit cards and how to deal with it.
This week I want to encourage you to raise the bar again. If you’re in business for the long haul and are serious about making it work, you must do this one.
If your money situation’s a bit of a mess (be honest!), you can’t skip this.
By taking this step, you’ll get clear on how much money you’re really making (it might be more than you think!). Paying taxes will be less stressful. You’ll be more professional. And you may even attract more money.
Keeping Things Separate
Today’s tip is simple: separate your business and your personal finances.
Separate checking accounts.
Separate savings accounts.
Separate PayPal accounts.
Separate credit cards.
Separate everything.
Mixing personal and business financials is messy, confusing, and dare I say unprofessional.
I know you’re in this business for the long haul, so get these set up properly.
“Money Loves Clarity”
One of the things I will never forget hearing my mentor and coach say when I was working with her in 2012 was “Money loves clarity.”
Click to TweetMoney loves clarityIn order to make more money, you need to be clear on what you’re making, what you’re spending, and what you really need to make to pay the bills.
You need to know how much everything costs, where the money goes each month, and what in your business brings in the most revenue.
And if you’re mixing your business and personal finances, you’re anything but clear.
When you are clear, you can make smart, strategic decisions about your money. And when you make smart decisions about your money, you tend to make more of it!
Last year I had a client once who was commingling her funds (which is technically legal in most cases if you run an LLC or sole proprietorship, even if it’s not the smartest thing to do). I made her separate out her business and personal accounts, and she quickly realized she was making way more money than she thought she was!!
This year, I’m having my year-long private clients get super clear on what they really need to make in their business to financially support themselves, where they’re spending their money, and what it will really cost to run that dream retreat they’re dreaming up… just to name a few financially-focused tasks.
Running a real business, being a real processional, and RAISE THE BAR means that you need to do the unsexy things like money management just as well as you do the sexy things like coaching, design, writing, and videos.
Your Action Challenge
Your action challenge this week is to set up separate accounts for your business. This includes checking, savings, PayPal, credit cards, and anything else money-related.
Even if you’re barely making money or haven’t made your first dime, create these accounts anyway! Your accountant and your future business self will thank you.
Block off a half-day in your calendar during this month to go to the bank and open new accounts (or in some cases you can easily do it online), apply for a new credit card, and open a new PayPal account.
If you’re wanting to RAISE THE BAR in your business, you have to do this.
Already have it done? Give you self a high-five in the comments below, and I’ll high-five you right back.
Are you in? Declare it in the comments below!
I wish I had found you when I was JUST starting out, as your tips are always so helpful. 🙂 I did separate my accounts and it made my first appointment with my accountant SO much easier and less stressful. I’m in total agreement that this is the way to go!
Awesome, Elizabeth!
I’ve been needing to do this, finances make me so nervous and I avoid them but am realizing more and more as business takes off that I HAVE to take control of them, because in the end they will control me. Thank you for the reminder Jenny 🙂
Yes, Teri!! You’re not alone in avoiding them but it’s a really bad idea. Taking charge of your finances says you’re serious about business. And when you’re serious about business, business starts to happen!
Thanks for these money action tips Jenny. Keep em coming. I do have separate accounts which is great. I do have an idea of what I need to be making. My problem is figuring out where to find those people that really need the coaching I offer and have money to pay for it. A question I have for you is why is it beneficial to do taxes quarterly as a sole proprietor? I have not paid taxes quarterly in this first year in business. Am I not following the law?
To answer your second question, if you’re turning a profit, then you need to submit quarterly taxes. It’s not a benefit — it’s the law! If you’re not yet profitable, then you’re in the clear for now. I recommend you find an accountant who can help you figure out the specifics for your business and your personal situation.
As far as finding clients that need coaching and can pay for it, there’s a lot to that 🙂
And stick around for lots more business tips…!
Hi Jenny,
I’ve been putting off getting separate accounts because I don’t know if there’s a particular bank to use or if I should open something online. Do you have any advice about this? Thnx.
Most banks or credit unions will offer business checking and savings. I went to the bank where we have our personal accounts and our mortgage and opened my biz accounts there. I did that for two reasons: (1) it’s easy because i’m already familiar with that bank and (2) I can easily pay myself each month by transferring money from my biz account into our personal account. (I’m an LLC so it’s easy to do that; for a Corporation it would be different.)
No need to overthink your decision. Pick a bank, walk in, talk to a banker, and get it done. It’s easy. Just bring your proof of business registration in your state, IDs, and… (call ahead to see what you need to bring).
Ok so here’s my question: you mention”proof of business.” If we are not a sole proprietorship, LLC, etc, what proof do we offer?
And in the irony of all ironies, I was coming home to write this question and received a paycheck to my biz name rather than my name. *d’oh!*
Proof that you’re a registered business. Every state’s requirements are different. For me, it was my official Oregon LLC registration document. See #1 here: https://jennyshih.com/2013/10/11-things-you-must-consider-when-working-for-yourself/
Thank you much!
Great tip.
It got me to put some order to my financial stuff this morning. I put so much energy in putting it off — which is funny because it only takes 45 minutes and a 45 minute walk to the bank to make the deposits. It feels so good to have it done. I need to work on the procrastination behind this. I never used to do this.
The only thing I had left to do is get a business credit card. I signed up for a credit card a few months ago, but the branch hadn’t received the papers when I went to sign for it. I just didn’t go back (I could have just walked in at any time). Procrastination 101. It’s time to get it done.
Thanks for the friendly reminder.
Excellent, Nathalie. You’re almost there… in the home stretch!! Yes, time to get it done 🙂
Jenny, Thank you so much for generously sharing your extensive wisdom and experience. I have a couple of questions I am wondering if you might address.
1) From which account (personal or business) do you pay things like utilities, things that, if you have a home office, are partly business and partly personal?
2) Do you pay yourself a set amount at a set time (or times) each month? And how do you determine how much that amount should be?
Thank you again. You are amazing!
Such great questions! First, my lawyer says I must recommend that you consult an accountant and a tax advisor for your personal situation. 🙂 He or she will be ale to help you with all of these specifics for you.
We love our accountant. He spent hours with us when my husband started his business in 2001 and when I started mine in 2009 and we needed to get all of these questions (and a million more) answered and sorted.
Here’s what we do:
Anything that is part personal and part business is paid by the personal account, like utilities. Because I work from home, I use the home office deduction.
I have an automatic transfer set up every month from my business to my personal account. It’s the same day and the same amount every month. Because of where my business is and my personal diligence on financial planning and tracking, I know what I can pay myself each month. So I like this “pseudo-paycheck” setup. This takes a lot of planning, clear/solid projections, and really knowing your numbers and keeping up on your books. (I’m a bit fanatical about all of this in my own business.)
However, for the first few years of my business, it was a manual process because I didn’t have predicable income. I had a reminder to go in on the first of every month and transfer $xx plus any additional if I could or if I needed to for covering bills.
Hope that helps!
Thank you! That is super helpful. You are always the best because of your clarity and experience.
I just did an audit to see which of my offerings at http://www.lifecoachingforparents.com was bringing in the most net profit and it was fascinating. I learned that a summer day camp I offer for teen girls was one of my most lucrative so I added another week and they sold out! Since my 1:1 coaching slows down in the summer as parents get busy, it was great to find a way to supplement my income during my slow months.
Smart thinking and planning, Torie!! Love how you’re thinking about this. Fantastic!
Thank you Jenny! I have had all my accounts separated for years, except my Paypal account. I probably use PayPal for personal use twice a year, so I didn’t think much of it. But, I took your advice & looked into separating them. What I found was that I did not have the business version of Paypal though I had buttons on my website, etc. & was paying more money in fees! Thank you for mentioning this and saving me money in the future 🙂
Kara
That’s too funny, Kara!! Glad you’re making the switch and saving money!