Bookkeeping tips to help you build a solid financial foundation for your business.
You really should save that. What am I talking about? Money, your business's money more specifically. Saving money is important even (especially) for your business. You should save for two things: taxes and emergencies.
Taxes. Most experts recommend putting aside 25% of your gross profits for taxes. Remember this formula:
- Total Expenses
= Gross Profit
Take your Gross Profit number and multiply it by 25%. Set this amount aside for taxes. I recommend a separate savings account so you won't be tempted to use it throughout the year. Use the money to pay tax estimates and any other tax due in April. If you have money left in the account after that give yourself a bonus by transferring all remaining money to your personal account!
Bonus Tip: hire a CPA to customize your tax savings plan and thus save you a lot of time and stress.
Emergencies. The other savings you should have is for emergencies and unforeseen events. Eventually your computer is going to give out or your camera become outdated. Don't wait until these things happen to save or worse yet put it on a credit card you cannot pay off! Use a business savings account to provide a buffer when emergencies arise, clients cancel, or you equipment needs updating. The amount to save will differ from business to business, but I recommend 3-6 months of typical business expenses. For example, if your expenses in a typical month are $500, you should have a business savings of $1,500-$3,000. You may also choose to save additional money if you know a large expense is coming in the near future (like attending a conference or purchasing a course).
Do you save money for your business?