Monthly Archives: March 2022
10 tips for managing small business finances
Let’s face it—managing a small business takes work. Between managing employees, overseeing marketing and advertising, and ensuring you have free time outside your job, handling finances on top of everything can be tough. But, managing finances allows your company to thrive—and makes your business less likely to fail. If you’re feeling overwhelmed and are unsure where to start, below are 10 tips for managing small business finances:
1. Be sure to pay yourself
If you own a small business, it can be tempting to put all your money into daily operations. After all, the extra capital can go a long way in helping your business’s finances grow. But, you want your business and personal finances to be in good shape, so it’s crucial to pay yourself. There are two main ways to pay yourself as a business owner: salary and owner’s draw.
With salary, you pay yourself a regular salary as if you’re an employee, withholding taxes from your paycheck. This is required for businesses structured as S-corporations, C-corporations, or limited liability companies (LLCs) taxed as a corporation. With owner’s draw, you draw money from profits on an as-needed basis. Paying taxes up front every time you draw is not required, but you should set aside money regularly to budget for your tax bill.
Pay yourself a fixed percentage of your business’s net profit, which is revenue minus all operational expenses. This ensures you meet business obligations first, like paying employees.
2. Separate personal and business banking accounts
One crucial element to managing small business finances is to separate personal and business accounts. Separate accounts make it much easier to oversee funds and handle taxes. Open a business checking account and a short-term savings account, like a business savings account or money market account. Georgia’s Own offers various business checking and savings accounts designed to work for your business needs. There’s even a Business Account Comparison tool to help you along your decision process.
3. Use a business credit card
Similarly, you need a business credit card to keep your daily purchases separate from business purchases. Business credit cards make tracking expenses easy and accounting less complicated. You don’t need to sift through your credit card statement to determine which purchases were personal or business related. It’s also easier to get records together if you’re audited.
Business credit cards don’t sit on your credit report, either. Your business line of credit sits separately from your personal credit line, so your utilization rate doesn’t affect your credit score. However, most applicants experience a two- to five-point hit on their credit score because financial institutions use your credit report to assess creditworthiness. Another thing to keep in mind is if you default on a business credit card, the issuer can come after you, as your credit guarantees those cards.
4. Have a reasonable budget
Having a budget helps account for every cent that comes in and out of your business. To start your budget, make a list of expected monthly income sources, like any payment made in exchange for a product or service rendered. Next, make a list of expenses incurred, such as inventory, payroll, insurance premiums, taxes, overhead, or debt payments. Having a budget will allow you to plan out expenses, reach business goals, and anticipate operational changes. There are various budgeting styles in business, so it’s best to determine which method works best for your business.
5. Understand cash flow
It’s critical to understand where your money goes when running a business. Poor cash flow management or poor understanding of cash flow causes 82% of small business failures. You must have tight expense controls—and if your bills exceed the cash you have on hand, you have an issue with cash flow. Create a cash flow statement to analyze your financial health and update it monthly. This will help avoid unnecessary bank account overdrafts or overspending. If you use Excel, there is a free cash flow template to help you get started.
6. Practice good bookkeeping techniques
Bookkeeping allows business owners to keep track of all financial transactions conducted within a certain period (usually monthly). Practicing good bookkeeping techniques allows you to keep an accurate track of your income and costs. You can bookkeep using a traditional ledger book or software like Quickbooks or Xero. There are free options available, too. Before deciding on an accounting program, think about your operations. Figure out if you need to send invoices, whether you want mobile access or access for multiple users, credit card processing integration, and more.
7. Set money aside for taxes
Setting money aside for taxes will help you save big in the long run. There are a few tips and tricks for determining how much money you should set aside for taxes. You’ll need to pay federal taxes, including self-employment tax and income tax. These are paid quarterly to the IRS. If you hire employees, you’ll also have payroll tax. Depending on your business, you may have to pay state and local taxes, like sales tax, franchise tax, or property tax. You can learn more about state-specific taxes by visiting your state’s tax authority website.
A general rule is to set 30-40% of your business income aside to cover federal and state taxes. You can put money into your short-term savings account for your small business taxes as often as you want. Tax obligations for businesses vary, so consult your CPA to determine how much you should set aside.
8. Don’t be scared of loans…
Loans can be intimidating, but they can boost your business when used responsibly. Without an influx of capital, it can be hard to purchase equipment or grow your product line. Small businesses are also eligible for SBA loans. SBA loans help small businesses grow by allowing borrowers to obtain long-term operating capital at a reasonable cost, including longer terms or no prepayment penalties. They can be used for business start-ups, expansion, equipment purchases, and more.
9. But keep good business credit
While you shouldn’t be afraid of loans, you should keep your business credit in good standing. As your business grows, you may want to purchase more commercial real estate or equipment or additional insurance policies. Getting approved is difficult with poor business credit. Be sure you pay off debt funding as soon as possible. For example, don’t let business credit cards run a balance for more than a few weeks or take out loans you can’t afford. Only seek funding you can easily and quickly repay.
10. Schedule time to stay organized
One of the easiest ways to manage your small business finances is to stay organized. Set aside time each week or month to keep finances in line. This includes adding data to any financial software you use, scanning receipts, filing paperwork, or invoicing. Set aside 15 minutes to an hour each week to ensure your finances are in line.
You can even set aside time to update your own finances, as you want both your business and personal finances to be in order. For example, you can set aside 30 minutes one day of the week to take care of any financial housekeeping for your business. On another day, you can work for 30 minutes on any personal finance issues.
We know that managing your small business takes time, effort, and money. With the above tips, we hope it makes your business finances seem less daunting. At Georgia’s Own, we believe small businesses are the pillars of our community—that’s why we offer a comprehensive suite of products aligned to your business needs, from business checking and savings accounts to treasury management solutions and commercial loans. Whether you’re just getting started or are an established business, our experts are here to help.
Georgia’s Own Credit Union named AJC and CoxNext’s 2022 Top Workplace
After being recognized as a Top Workplace nationally, Georgia’s Own is proud to be named to The Atlanta Journal-Constitution and CoxNext’s 2022 Atlanta Top Workplaces list.
4,583 Metro Atlanta companies were nominated or asked to participate in the Atlanta 2022 Top Workplace rankings, and more than 73,000 workers in the Atlanta region were represented.
With our nearly 90-year history of serving Atlanta and the state of Georgia as a not-for-profit financial institution, investing in our members, giving back to our communities, and cultivating our employees is at our foundation—and we believe that starts with fostering a flexible, collaborative, connected, and supportive work environment.
We’re thrilled to be included among some of the best organizations in the Atlanta area. This award would not have been possible without our employees who work together daily to ensure we continue to be more than just a financial institution—we’re a financial partner.
That’s Banking on Purpose.
How will rising inflation affect me?
Inflation is a term we hear quite a bit, but we may not fully understand what it means for us, or how it will affect our daily lives. But, as with any new idea you want to understand better, knowing is half the battle—and we have some info that can help you with the rest of the fight.
What is inflation?
Simply put, inflation just means you will pay more for the same goods and services. Your favorite brand of soda might go up a few cents; going to the movies will likely take a few more bucks than you’re used to. If you’ve ever heard Grandma tell you how cheap a gallon of milk used to be, you are familiar with inflation
Why does it happen?
Inflation seems to be the result of a few different phenomena:
The “Demand-Pull effect” – the demand for a product or service is higher than the current economy was prepared to meet. Prices rise as more and more consumers seek out certain items (see: toilet paper in 2020), often resulting in prices above the market value.
The “Cost-Push effect” – this effect works in the opposite direction—it’s the cost of the production process or service that rises, which in turn is passed onto consumers. Keeping up with demand while low on supplies or with increased price of supplies means the consumer pays more.
Built-in Inflation – when prices rise, those in the workforce need to increase their wages to keep up with the cost of living. It’s a cycle of inflation: prices rise, wages rise, and prices rise again.
How does it affect me?
Inflation affects everyone—some more than others. Here are some actions you can take if inflation affects you:
Rebuild your budget
We know you have a budget! And we also know that you know that budgets need to be reviewed and updated as life changes. This includes the changes that inflation brings. If you are currently dependent on a medication that is going to cost more, you need to factor that into your budget. If your grocery bill will go up, you need to factor that into your budget. You get the picture.
Take stock of your finances
If you’re worried about inflation and its effects, this is a great time to speak with a financial advisor who can help you determine the state of your finances and ways you can continue to budget and save. Getting an objective, professional opinion can go a long way in identifying potential danger areas and the places where you can grow your wallet.
Keep an eye on the job market
We’ve talked about how inflation means many earn higher wages, but it can also mean fewer jobs. If a company hopes to maintain their own budget while giving raises to some of their employees, there may be fewer jobs available. You don’t need to rush out and find a new job today; just keep your finger on the pulse of your own job while looking at options for others.
Know your home’s value
You may not be planning to move ever again, but it’s always a good idea to know the value of your home. This is a simple task—you can sign up for websites like Zillow that will give you an estimate of your home worth. Check out the value occasionally to keep in the back of your mind—you never know when that info could be useful, especially in the current housing market.
Check out your retirement plan
You or your partner are likely paying into a retirement plan already. While this is a great idea, you will want to take a look at the plan and see how inflation can affect your ability to save for the future.
If retirement is a long way off, you have a little more flexibility when it comes to making any changes. But if you’re looking to get out of the workforce in the next few years, review your retirement account and make necessary changes to ensure your financial security.
Inflation is a fact of life—but you don’t have to be afraid of it. Some of these changes may seem overwhelming, but you’ve already won half the battle with your new knowledge. Make a goal this week to sit down, review your budget, and determine your best next steps for keeping your financial security stable.
How to budget money on a lower income
We all know managing money wisely is essential to anyone’s financial plan. It’s easier said than done, though—especially if you aren’t making as much money. Most budgeting tips are geared towards people who earn higher salaries or have dozens of options for storing their money. Can you manage money when you feel like you have nothing? The answer is yes, and we’re here to help. Read on for tips on how to budget money on a lower income.
Analyze your current budget
The easiest way to budget money on a lower income is by analyzing your current budget. By looking at your complete financial picture, you can see where you can cut expenses or what you need to prioritize. Ideally, 6-15% of your net income should go towards transportation costs. If you find you’re overspending in that area, see what solutions you can implement, like refinancing your car loan or negotiating your insurance.
If you don’t have a budget, this is your chance to make one. A common budgeting tactic is the 50/30/20 rule. Divide your after-tax income into three categories: needs, wants, and savings. 50% of your budget should go towards needs like rent/mortgage, groceries, transportation, utilities, and insurance. 30% will go towards wants like dining out, entertainment, gym memberships, or shopping. Lastly, 20% will go towards savings like an emergency fund or a down payment on a house.
Set attainable financial goals
Setting reasonable financial goals will help you stay on track. Ensuring they’re SMART—specific, measurable, achievable, relevant, and time-based—allows you to reach your goal. For example, if student loan debt is overwhelming you, your intent might be to pay off a $10,000 student loan in 36 months. That qualifies as a SMART goal because it is specific, a measurable amount, achievable within your means, relevant, and has a timestamp.
Strategize paying off debt
If you’re struggling with paying off debt, the snowball method is an excellent tool to get it under control and manage money on a lower income. Start by listing your debts from the smallest to the largest dollar amount (not including your mortgage). Take extra money from your budget, apply it to the smallest debt, and then make the minimum payments on your other debt. Once that smallest debt is paid, you’ll move on to the next and continue the process. Another method is the opposite—the avalanche method. Rather than listing your debts from the smallest to largest dollar amount, you pay off debts with the highest interest rates first. This also reduces your overall debt load faster.
The snowball method is more of a motivational boost—paying off debt seems more manageable when you get rid of your lowest debt first. The biggest con, though, is your high-interest debts accumulate more interest when you make only the minimum payment. The avalanche method is a smarter choice financially because you pay less interest overall. However, your smallest debts may be the ones with the highest interest—like credit card debt. In this case, you’ll be practicing both methods at the same time. But, it’s important to choose the method that works best for you.
Cut unnecessary expenses
Did you know the average American spends $237 per month on subscriptions? That’s nearly $3,000 per year! You can use that money to pay off debt, save for a home, or build an emergency fund. If you’re on a tight budget, cutting unnecessary expenses is your ticket to saving big. Canceling unused or unwanted subscriptions is the perfect beginning step. For example, if you have a Spotify and a Pandora subscription, do you need both? Cancel the one you use less frequently. Or maybe getting fit was your New Year’s resolution—but you never go to the gym. See if you can get out of that costly contract.
Create positive spending habits
Budgeting sometimes has a negative connotation. Creating positive spending habits allows you to look differently at how you spend your hard-earned money. Reducing credit card spending is an easy way to start. Credit cards aren’t evil, but bad spending habits can accumulate in the form of credit card debt. Remove stored credit card information from online sites where you find the urge to splurge. Instead, open a savings account for larger purchases.
Impulse buying is another habit to kick to the curb. You may feel happy during the moment, but impulse purchases rack up quickly and take a toll on your finances. If your impulse purchases aren’t monitored, your account can quickly deplete. Before you make an unplanned purchase, wait a day or two. This will give you time to think about whether you need it or not—it also gives you time to shop for a better deal.
It’s possible to break the cycle of living paycheck-to-paycheck and set yourself up for financial success. Despite how difficult it may seem, you can get in financial shape—with some effort. It’s not easy to live on a tight budget, but by following the above tips, you can improve your financial outlook and achieve your goals.
Mistakes to avoid when using cash transfer apps
It’s a digital world, and we’re just living in it. While there are many technological updates that have become available over the last few years, one of the most widely used digital shortcuts are apps and services that allow you transfer cash. Whether you use it to pay back a buddy for getting the pizza last week or to receive your weekly paycheck as an employee, there are few, if any, people who have not had the chance to at least explore the benefits of cash transfer apps. But, as with all things, we do need to be cautious about using these apps well—and avoiding common mistakes.
What are you talking about?
You may be one of the few people we mentioned who have never used a cash transfer app. No worries—we can help. Many people prefer to send or receive funds instantly, as opposed to waiting for a check in the mail. That’s where these apps come into play. You create an account with a username, set up your app or service to withdraw from or deposit into a bank account or credit card, and from there it’s just a matter of requesting or sending funds. Easy, right?
Is it safe?
Each app is required to disclose the way it protects your private and financial information. While you always run a small risk anytime you enter in personal details, the most popular apps are invested in keeping your information safe because they want you to use their services, so they work hard to keep your info safe. Take some time to research your concerns—if an app has had trouble, the internet will know.
What are the most popular cash transfer apps?
There are many popular cash transfer app choices these days, and if even you don’t use one yourself, you have likely heard of these.
Zelle is a common choice for people looking to make a transfer from their bank account to another bank account. PayPal is another fan favorite, largely due to its easy set up and ability to use it as an app or on a browser. Venmo has risen in popularity over more recent years and is a great tool for splitting that large dinner check between you and a group of friends.
So…what are the mistakes?
Right—we mentioned mistakes. There are some common errors that many people make when using these apps, so read on for ways you can avoid the same fate:
Sending money to the wrong person
This may seem very simple—why would you send money to someone you don’t know? Well, you probably will if you ever buy something off Facebook marketplace or need to buy last-minute shin guards at your child’s soccer game.
When that happens, you want to make sure that you have the right username and account for the person you want to pay. Some apps have protection built in to help you get your money back if you make a mistake, but not all of them do, so be sure to check and double check your recipient each time.
Overpaying
There is nothing worse than trying to send someone $20 and accidentally sending $200 instead. But it happens more than you think. When you send someone money, take your time—there are very few situations in which a cash transfer app is part of a true emergency.
Take a minute before you press that final confirmation button to be sure you are sending the right amount (to the right person); otherwise, you will be at the mercy of the recipient to hopefully return the amount you overpaid.
Neglecting to protect your phone and apps
It can be a huge pain to enter a password, scan a thumbprint, or scan your face to unlock your phone when you’re in a hurry. And it’s tempting to get rid of the protection altogether, but—read carefully—don’t do it. That protection isn’t just to keep someone from posting silly photos on your Instagram; it’s a way to protect your very sensitive financial info.
In fact, we vote you take it a step further and add a password or facial recognition requirement to your cash transfer apps to ensure that someone can’t send or receive on your behalf.
Not keeping up with your transactions
Even the most careful people can make mistakes. If you notice someone else seems to have access to your accounts, change your passwords and contact your bank ASAP. Consider doing a weekly review of your cash transfer apps to ensure there are no questions or surprises.
Many apps will send you a monthly transaction statement—review it, compare it against your own notes, and be on the lookout for anything that you don’t remember sending or receiving.
Forgetting the rules
Did you know that Zelle transfers money to and from your bank account instantly? If not, you need to do some research—or all the cash transfer apps you use. It’s imperative to know when you will send or receive your money, especially if you have immediate plans for your new funds. Knowing the timeline of your transaction, along with any associated fees, will help you balance your budget and stay on top of your finances.
Trusting the wrong person
It’s sad, but true—scammers are also using cash transfer apps to trick you out of your hard-earned cash. Scammers know how to make themselves look legitimate, so before you send a $1,200 deposit to secure an amazing apartment, do a little research to make sure everything is on the up and up.
If you’re still not sure, ask to use a different payment method or to meet in person to ensure you are paying the right person for the right good or service.
Have we scared you away from cash transfer apps? Don’t be afraid—they are a great tool to use, and we all know technological trends like these are here to stay. But do be cautious: guard your funds and app carefully, double check all your details, and pay attention to service fees and other app rules. Following these steps will help you avoid mistakes and enjoy your funds that much faster.