The Top 5 Financial Tips for Newly Incorporated Businesses
It goes without saying that as a business owner, it’s essential to have a handle on your finances.
The good news is that incorporating allows you to more easily take advantage of financial options you may not have had before.
Here’s a look at the top financial tips for business owners who’ve incorporated and want to take control of their financial wellbeing.
1. Separate your personal and business banking accounts
One of the advantages of incorporating is that it makes it much easier to separate your personal and business expenses.
That’s partly because incorporated businesses have access to a variety of business bank or FDIC-insured ‘bank alternative’ cash accounts where they can place, send, and track their money. While business cash accounts for sole proprietors do exist, sole proprietors often have less options than incorporated businesses when selecting the best choice for their financial goals.
Having a dedicated business bank, cash, or savings account for just your business expenses alleviates a lot of the stress around tax time and the general stress of having less immediate visibility over your company’s cash flow. It also lets you:
- More easily track your business transactions
- Accurately manage your business cash flow (which helps you make your business profitable)
- Clean up your bookkeeping in case of an audit
- Apply for larger business loans
- Make your business more attractive to lenders & investors
Let’s talk a bit more about this last point— being attractive to lenders. If you ever want to apply for alternative financing like a business loan or even an SBA loan, lenders will conduct due diligence to see if you have good bookkeeping. Part of that means keeping your personal and business finances separate.
Afterall, without this separation, it’s much harder for lenders to see if your business is legitimate and low risk. The same is true with investors.
Across the board, business owners who don’t separate their business and personal expenses are generally seen as riskier borrowers, and may have trouble getting approved for loans with low interest rates.
2. Understand your business tax responsibilities & potential benefits
Come tax season, the type of business entity you’ve selected will determine which tax forms you’ll need to file, which taxes you’ll be expected to pay, and how to pay them.
The five common types of business taxes are:
Depending on your entity type, you may be expected to pay all or only some of these taxes. You can also decide within which time frame you’ll be taxed. Businesses typically determine their taxable income based on a tax year of 12 consecutive months, but there’s two tax year options you can choose from:
- A traditional calendar year (Jan. 1— Dec. 31)
- A fiscal year (12 consecutive months ending on the last day of any month other than December)
There’s benefits to either option. While a calendar year is simple and more common, a fiscal year can present a more accurate picture of a company’s performance.
This is especially true with seasonal businesses that would need to split revenue earned between December and January, or businesses wanting to compare their performance against other businesses operating within a fiscal year end industry. Either way, you’ll need to choose which tax year is best for you.
3. Hire an accountant
Depending on how comfortable you are with financial management, it may be a good idea to hire a Certified Public Accountant (CPA) to help you get a handle on your finances.
Aside from helping you determine which tax year makes more sense for your business, a CPA helps you with:
- In-depth bookkeeping
- Filing taxes to ensure you get the most back on your returns
- Managing your business performance and assets
- Making critical business decisions
- Offering the right financial advice
- Alleviating minor business costs
If you hire a CPA full time, these benefits extend beyond tax season. Having a financial expert on the books year round can help mitigate filing issues with the IRS before they arise, maximize tax deductions on your behalf, and give you overall peace of mind during or outside of tax season.
At the end of the day, the benefits of having a CPA can far outweigh the costs of having to repeatedly remedy mistakes and reconcile your books. As your business grows, you may also want to consider hiring a financial advisor to help you make important financial decisions.
4. Get a business credit card & use it responsibly
Having a business bank or cash account is an important part of any business plan, mainly because it allows you to build business credit, access extra float when you need it, and qualify for additional business loans and investments in future.
‘No personal guarantee’ business credit card
There was a time when applying for business credit cards meant you had to provide a personal guarantee (i.e., an agreement to accept personal responsibility for any debts your business incurs), but recent years have seen the arrival of FDIC-insured business bank alternatives that offer secure and competitive business credit cards with no personal guarantee.
Still, at the time of writing this, there’s only a few major companies that offer a no personal guarantee, no fee business credit card, one of them being Brex.
Here’s an overview of what the best business credit cards provide:
- Access to much-needed credit
- Dynamic credit limits
- No fees
- No personal guarantees
- Opportunity to build your business credit score
- Greater purchase protection
- The ability to set dynamic spending limits on employee cards
- Rewards, cash back, and discounts that help you save
Since business credit cards can also be easier to secure than a traditional loan or line of credit, they’re a simple way to purchase the equipment and inventory you need to run your business and earn rewards on your spend.
More about business credit card options
Brex offers a financial solution for small business owners who want to get a handle on their finances today, but might not know where to begin, or who feel disillusioned with what traditional banks offer.
In addition to providing rewards, discounts, and cash back on apps and services your businesses use most, the Brex business credit card gives entrepreneurs the tools they need to manage their money with confidence.
A Brex account allows business owners to:
- Apply without affecting their credit score
- Build business credit
- Issue limitless virtual credit cards to employees
- Ability to sign up in minutes (rather than days or weeks as with traditional business bank accounts)
- Earn cash back and rewards on everything you spend
- Enjoy spend management tools to help you understand your finances
There’s also no fees on international wires or ACH transfers and no annual fees.
5. Automate your business accounting
There’s few things more time-consuming than reconciling finances at the end of every month.
That’s why automating your business accounting is one of the best things you can do for your business— and yourself. Not only does automated expense management improve company productivity, but it streamlines everyday processes, provides a better financial overview, improves expense reimbursement, and reinforces employee compliance.
To help ease the pain that often comes with expense management, Brex partners with leading accounting software platforms like Quickbooks, Netsuite, and Xero to seamlessly integrate your favorite tools.
Brex also offers receipt capture technology. Users can easily upload a photo or screenshot of their receipt into the Brex app, and the their purchase will automatically be paired with their transaction.
Transactions are now conveniently available at your fingertips, ready to consolidate and file at year end.
Being able to access your business spending records at a moment’s notice can help speed up loan requests, investor inquiries, financial transactions, and large purchases for your growing business. All of this can save you the valuable time you’ll need to focus on creating and scaling your company.