Samir Harath is the owner of The Comic Accountant, committed to helping small business owners understand accounting and finance through comics.

OPINION: Are you a business owner, or perhaps a freelancer, looking for freelance work (which still counts as a “business”)?

Do you use separate business accounts for your business?

If so, great! If not, you need to set up new bank accounts specifically for your professional/freelance work.

READ MORE:
* NZ Reserve Bank set to raise official exchange rate to highest since 2016
* Cultivate a Food Community: Is cultivating your own the way to beat food prices?
* How using video on websites can help small businesses

Multiple bank accounts are a great tool to use in personal budgeting. We can also apply the same ideas to business budgeting.

You can budget your business cash the same way you manage your personal finances.

John Kirk-Anderson / Stuff

You can budget your business cash the same way you manage your personal finances.

Having money in different accounts allocates them for different purposes.

There are many ways to set up bank accounts for your business, but here are the four basic bank accounts any new business should have when starting out.

A daily business account

This is your primary business account that you use to pay for your business expenses.

This is also the account where you charge your customers for your products/services.

Some advisors may require you to have a separate account for expenses and income, but that’s clunky.

Save yourself the pain of having to transfer funds to your spending account to spend and do it all in one account.

Any transaction related to the day-to-day running of your business should use this account.

To pay rent ? Daily occupations.

Staff salaries? Daily occupations.

Customer revenue? Daily occupations.

It’s also the account number you should put on your invoices that you send to customers, and if you use online payment services, that’s where your payments come in.

This account should be opened as a normal checking account and you will want to link a debit card to it.

Be sure to stick a giant sticker

Stephen Phillips/Unsplash

Be sure to stick a giant “for business use only” sticker on this card so you’re not tempted to use it to buy personal things.

You can use this debit card to make online purchases and eftpos payments.

Be sure to put a giant “for business use only” sticker on this card so you won’t be tempted to use it to buy personal things.

If you are looking to pay yourself, you can also withdraw withdrawals from this account.

An income tax account

Most banks have a savings account that offers better interest rates than a regular checking account.

Typically, to qualify for this interest, you must deposit a certain amount of money and not withdraw any money for a certain period of time (usually for at least a month or so).

You must set aside 20% to 30% of any income received on this account. It’s money you set aside to eventually pay taxes when they’re due.

You must set aside 20% to 30% of any income received in a separate account to eventually pay your taxes when they are due.

123rf.com

You must set aside 20% to 30% of any income received in a separate account to eventually pay your taxes when they are due.

Ideally, you should do this every time you get paid.

If your customers’ payments are irregular, get into the habit of checking your income weekly and set aside 20-30% of that amount.

Business owners are not taxed on their wages like salaried workers. For this reason, business owners who don’t put money aside to pay their taxes when they’re due, often find that they don’t have the cash when needed.

Taxes are important and your ability to pay taxes on time can make or break your business.

Make sure you start off on the right foot with a dedicated bank account to save money for taxes.

If you pay provisional tax, the rule always remains the same – 20% to 30% of your income must always be paid into your income tax account.

A GST account

If your business is registered for GST, a GST account is important. If you are not registered for GST, you do not have to create one.

In New Zealand, the GST rate is 15% – so every time you receive a payment from a customer, be sure to put 15% aside in your GST savings account.

It’s important to remember that you should set aside 15% of the gross amount billed to your customer, not 15% of the payment you received.

This is how it works:

Wong makes a $1,000 sale to his client. With 15% GST, he sends his customer an invoice for $1,150 ($1,000 sales plus $150 GST). When he receives money from his client, he will receive $1150 in his bank account. He should then put $150 into his GST account from the sale.

You can simplify the calculation by using this formula. Remember that everything your customers pay you includes GST (if you are registered for GST).

Simply take the amount including GST and multiply it by three and divide it by 23: $1150 X 3/23 = $150

And that’s the amount you have to put in the GST account.

Remember that the GST is borne by your consumers, not you, but you are simply responsible for collecting it from them.

When it is time to pay the GST, you can be sure that there is enough money in the GST account to make the payment.

A “fuel for growth” account

In some of my old writings, I used to call this a war chest account. Given the ongoing conflicts around the world, I have opted for a less militaristic term. A client of mine used fuel for the growth of this account and I adopted it as well.

The purpose of this account is to have fuel (money) to grow your business in the near future.

The way it works is that at the end of each week, 10% of your remaining daily business account balance should be put into your “Growth Fuel”.

Money saved as “fuel for growth” could be spent on large, one-time expenses.

You can use this money to pay for specialized training, buy a new vehicle for the company, or make a down payment on certain plant and machinery.

Money in this account can also be used to make emergency payments, such as a large refund to a customer or settling a contract dispute.

A simple strategy to simplify your finances

Here are some simple basic strategies you can use to get your business finances on the right footing.

As your business grows, you may find that you need to refine these strategies with other tools, like accounting software and financial tracking.

With money in the right account, you'll feel more confident about your finances.

pogonici

With money in the right account, you’ll feel more confident about your finances.

The main purpose of having different bank accounts is:

  1. Have money aside for taxes

  2. Save money for future growth / emergencies

  3. Make sure you have enough money to run the business

With money in the right account, you’ll feel more confident about your finances.

Also, with this basic system setup, you can then work out strategies on how to pay yourself from your business. We will talk about it in another article.

Keep control of your finances and stay financially confident.


Source link

Previous

Stirling BID launches ambitious business plan for second five-year term

Next

Asia-Pacific Deodorant Market Changing Business Needs by SWOT Analysis and Key Growth Methodologies – The Daily Vale

Check Also