The financial habits that make small businesses feel stable

Ever tried to walk without a backbone? Probably not. Just as your body depends on a backbone for stability, your business depends on a few consistent financial habits.

Sometimes, things fall into our laps. We might finish massage school, have great experiences with our first clients, start to get referrals, and bingo - we’re in business! This can happen before you’re ready, before you’ve figured out how you even want to run your business. And it’s ok! Starting a business like this is oftentimes better than slow, careful planning, because many of us get stuck in planning everything to be “just so.” Sometimes it’s better to just jump in.

If this is you, great! You are moving in the right direction, and you have a bright future - keep it up! If you are reading this article, however, you may feel like your business finances are not as stable as they could be. It’s time to back up, and set things right for moving forward.

Below are some practical ways to look at your business finances, simply and effectively. I focus on the straightforward here, which also reduces overwhelm.

This is a big one. If you do not already have a business bank account, open one. I will break down types of accounts below. The most important thing right now is to get your business financial transactions separate from your personal ones. Here is a short list of reasons: 1) you can more easily see your business’ financial picture, 2) you can more easily prepare taxes, 3) you can know how much money is available to spend. If you do not have a business bank account already, shop to see which make the most sense for you. Here are some thoughts on this:

I like to keep things simple. I use a very generic, often-suggested breakdown for budgeting for expenses. When money comes in, I break it up into five categories:

Whether or not you use this exact breakdown, it is a good starting point. You can keep track of this in an Excel spreadsheet or Google Sheets if you like, or use a bucket system within your banking. For this article, a bucket system means using separate accounts (or categories) within your banking app for different purposes. I use a bucket system, where I have several savings accounts in addition to my checking that are used for these purposes only.

It’s worth taking time to understand your numbers. Sit down with your bank statements, and look at your expenses over the last three months. Many banks have options to automatically categorize transactions, especially when it comes to personal accounts. If not, do it manually.

Once you get a picture of how much you are spending and where, you can determine if the above percentages are realistic for your business, and what adjustments (if any) you want to make.

After that, it’s time to come up with a banking schedule.

I suggest keeping Friday for this. On Friday, each week, make cash and check deposits at your bank (into your business checking). Then, review all payments that have come in for the week through your booking system. Review all payments that have come in through Venmo or oor similar apps. Review all payments that have come in via direct deposit. Total them all, and break them into the percentages discussed above.

For example, if you receive $1,000 in total for the week, 40% of that ($400) will go into the Owner Pay savings account. 30% of that ($300) will go into the Tax savings account, 15% of that ($150) will go into your Rent savings account, 10% ($100) will go into your Other Expenses savings account, and 5% ($50) will go into your Buffer/Profit savings account. Simple as that. Every Friday.

Once you have completed that, it’s time to add to your checking.

Small business income is not always consistent; some weeks will be slower than others. You could aim to build a buffer of about three to six months’ worth of operating expenses in your business checking, for example, so that you can cover slow periods or unexpected expenses with a minimum of stress. In my opinion, before taking the 40% owner pay, you should build up this buffer. So, if it costs you $1,200 each month to operate your business, keep at least $3,600 in your account, and try to maintain this balance at all times.

Once you’ve reached a point where you have enough of a buffer in your business checking, you can start to split income into all of your accounts every Friday.

You’ve set up your basic budget, set up a banking day, and built your account buffer. Now keep going. Get used to the rhythm of it, and make it just another part of your business life. Once you’ve done that for a while, look to see which adjustments you want to make, if any. Do you like the overall percentages you’ve allocated in each category of your budget?

And, if somehow you find yourself wandering from the path, it’s okay. Just pick yourself up again and go back to the basics.

Start simple and start now.