The most important thing you can do for your business is to get your money right. Ironically, making money is not the hardest part of business. Managing it is. If you mismanage your money, you can get yourself in trouble quickly. It is only a matter of time before bills pile up higher than you expected, or you get audited by the IRS.
So I made a business money basics course where I go in-depth about how I manage my money and tell you everything you need to know to do it on your own. This article is going to be a brief overview of what you can expect from the hours of video you will get in the full course. If you want your business to succeed, you should really check out this course.
The first step to making a successful business is making sure you make it legal. Once your business gets big enough(making multiple thousands a month) it is time to create its own business entity.
This is where you should hire a tax professional. These tax accountants also will help you set up your business legally, and tell you exactly how to do it. It can get pretty complicated when you have to decide between making a schedule c, S Corp, C Corp, LLC, etc. A tax accountant can walk you through all of the options and help you get it set up.
After you get the legalities out of the way, you then want to make sure you have insurance. Eventually, someone is going to get hurt on the job site. Then you will likely be sued and have to pay for it out of pocket. You can get many different types of liability insurance, and some states even require it. So do your research and find out what your state requires.
Once you have your legal entity set up, you will have an Employer Identification Number (EIN). You can use that to set up bank accounts and a line of credit in your business name. This is super important, so let's take a closer look at what you should do.
You definitely want to have multiple bank accounts for your business. Every business should have at least one checking account that you use to pay for all of your expenses. If you take out a line of credit on the business, this is the account that is going to pay that credit bill.
Every single penny that comes into your business whether it is cash or digital should go into this checking account. I know a lot of guys in this space will take cash payments and just keep it off the books, but that is not going to work if you are doing it all the time. Eventually taking cash under the table will catch up with you. It is better to report all of it and have it in your small business checking account(SBCA).
After you have an SBCA that all of your money goes into, you should also open a small business savings account(SBSA). This is where you are going to put the money that you may need to pay expenses in the furniture. Things like insurance and taxes should be paid from this account.
It is also a good idea to have at least one checking account and savings account for yourself as well. This course is not about personal finance, but when you take a salary from your business, it is a great idea to put a good portion of it back for retirement or a rainy day.
A major reason you need to have these separate business accounts is so that you can separate your personal spending from your business spending. Believe me, doing this now will make it a whole lot easier to sort out your books come tax time.
You also need to make sure you are not putting non-business expenses on your business account. Sure, you can put the gas bill for your company truck on the company card, but you should not put the gas bill for your wife's personal car on there.
If you really want to master your money, you need to keep track of it. You should know every penny that comes in and out of your business and have it documented somewhere. You also want to keep track of every check you deposit and every dollar bill you receive.
The more you keep track of and the more you know about your finances the better off you will be in the long run. Plus if you keep meticulous track of your finances, it will only make it easier for your accountants or CPA to sort out your taxes and other responsibilities.
Speaking of Certified Public Accountants(CPAs), you need one. You also need a bookkeeper that can track all of your expenses. Sure you can do that yourself for a while, but after you really get your business going, it can be tough to find time to do that when you have to worry about doing jobs.
Plus, an accountant is also going to save you a ton of time and money. These people are trained in taxes and accounting and they know exactly what you need to do year to year to stay compliant with the IRS. That is really tough to do if you are not trained in business tax law, and I am guessing most landscapers are not.
Long story short, hire a tax accountant and a bookkeeper. It will save you hours of work, thousands of dollars, and a lot of really bad headaches.
Remember that small business savings account? Well, you should really try your best to put 30% of your gross income into that account. I know that sounds like a lot, but you are going to need it come tax time.
For example, if your business is making $100,000 a year, you can expect to pay around $25,000 in taxes. If you save 30% of your income, you can easily afford this year over year. Then you will even have a little bit leftover at the end of the year that you can use to buy equipment or save for next year.
This is super important, and if you can not afford to pay your taxes at the end of the year, you are going to be in a lot of trouble. This is the main reason I say it is so important to report all of your income. Sure you may be able to get away without reporting cash for a few years, but after an audit, the IRS is going to find out. It is not a question of if but when.
That is why you need to build a legit business and be prepared to pay taxes. Otherwise, you may start expanding a lifestyle that you will not be able to afford if the IRS knocks on your door. The last thing you want is for the IRS to take your house because you did not report your business income for five years.
One of the biggest things that makes people lose is their lifestyle. They buy dumb stuff that they can not afford to impress people. If you really want your business to grow, you need to spend the bare minimum at home. Act like you are broke.
If your business is making $100,000 a year, your take home should be 30-40k. Take as little as possible and reinvest the rest into your business. I know that many of you think that you worked so hard and you deserve that money. You are right, you do. However, if you just put it back into your business it will make much more money the next year.
Year after year your business will grow. If you take every cent you can, then you will be making the same amount of money year over year. Eat dirt for a few years and give your business as much fuel as possible. It will pay off in the long run.
One thing that will help you keep your lifestyle minimal is the 20% rule. In general, a business takes home about 20% of its revenue as net income. Now it may be a little more or less for you but for the sake of the analogy let's assume you make 20%.
If you want to go buy a piece of equipment that costs $1000, what does it really take to buy that equipment? Your initial answer is probably “duh it costs $1000”, but if you are only making 20%, your business has to make $5,000 in order for you to buy that $1,000 item.
So while it may only cost $1,000 it actually costs $5,000 worth of work. That puts it into perspective of just how much you are really going to pay for it. It only gets scarier when you start looking at personal cars, or maybe a camper.
Using this one rule will help you keep your lifestyle as minimal as possible until you can actually afford those nice things. Remember, eat dirt for a while, and it will eventually pay off if you are determined and put in the work.
The most important thing you can do for your business is to make sure that it is a legal business. You can hire an accountant and they will help you with every legal aspect of the business world. Plus you can also hire a bookkeeper to help you keep track of all of your spending and income, which will make things easy come tax time.
You should also have an SBCA in your business name. Every cent your business makes or spends should go into this account. You should also have an SBSA where you store 30% of your gross income that you will use to pay taxes.
You also need to live as minimally as possible while you are growing your business. The more you can leave in your business the more it will grow year over year. Remember the 20% rule and eat dirt for a few years. It will pay off in the end.
Learn more in my new online course