THE BASICS OF STARTUP FINANCES
Financials, Basic Paperwork, and Budgeting
NEW & PROSPECTIVE BUSINESS OWNERS
This thread is dedicated to you.
CC: @B_REInvest @capital_sb
Financials, Basic Paperwork, and Budgeting
NEW & PROSPECTIVE BUSINESS OWNERS
This thread is dedicated to you.
CC: @B_REInvest @capital_sb
Legally speaking, as soon a you file your EIN and Register your business with a State.
But honestly, as soon as you intend to start a business there's a few financial things you have to get together...
And since my name is Mr. Cash Flow (currently) we'll start there 👉
But honestly, as soon as you intend to start a business there's a few financial things you have to get together...
And since my name is Mr. Cash Flow (currently) we'll start there 👉
1/ OPENING A SEPARATE BANK ACCOUNT
This might seem obvious but sometimes people get lazy or they think because they're keeping good track of their business' finances using their existing accounts that they don't need a separate bank account.
This might seem obvious but sometimes people get lazy or they think because they're keeping good track of their business' finances using their existing accounts that they don't need a separate bank account.
Make sure you run all of your expenses for that business through that account.
During the year, those expenses should be tracked either by yourself or a bookkeeper and tuned over to your tax preparer at the end of the year. (I strongly recommend you get an IRS Enrolled Agent)
During the year, those expenses should be tracked either by yourself or a bookkeeper and tuned over to your tax preparer at the end of the year. (I strongly recommend you get an IRS Enrolled Agent)
If you want to take the bank account situation up a notch then you need multiple bank accounts when you first open your business.
And you should have accounts at multiple banks.
I would set up an account at
1. Chase/Bank of America
2. A credit union of your choice
And you should have accounts at multiple banks.
I would set up an account at
1. Chase/Bank of America
2. A credit union of your choice
Now this isn’t my trick, just something I pickup up from Reading Profit First (ask @JoshTooClutch he uses this) but this is how you want to label your accounts
NCOME
EXPENSES
TAXES
SAVINGS
PROFIT
And this is how you make the most of them
NCOME
EXPENSES
TAXES
SAVINGS
PROFIT
And this is how you make the most of them
@JoshTooClutch Lets say I made $1,000 in income and my effective tax rate is 25%
When I receive $1000 I’ll split it up like this
TAXES - $250
EXPENSES - $500
SAVINGS - $100
PROFIT - $150
This is for organization and cash flow optimization purposes but it will also makes getting a loan EASIER
When I receive $1000 I’ll split it up like this
TAXES - $250
EXPENSES - $500
SAVINGS - $100
PROFIT - $150
This is for organization and cash flow optimization purposes but it will also makes getting a loan EASIER
@JoshTooClutch 2/ EXPENSES
So in general you have about 3 main categories of expenses (with a few examples added)
1. Fully Deductible
- Cost of Contractors
- Salaries
2. Partially Deductible
- Meals & Entertainment
- Milage Costs
3. Not Deductible
- Random Clothes
- Escorts
So in general you have about 3 main categories of expenses (with a few examples added)
1. Fully Deductible
- Cost of Contractors
- Salaries
2. Partially Deductible
- Meals & Entertainment
- Milage Costs
3. Not Deductible
- Random Clothes
- Escorts
Make sure whoever is doing your bookkeeping is showing you those expenses in separate categories!
WHY?
You don’t wanna be that business owner at the end of the year that spent all their money on non-deductible expenses and has a huge tax bill 🥴🥴
Moving on...
WHY?
You don’t wanna be that business owner at the end of the year that spent all their money on non-deductible expenses and has a huge tax bill 🥴🥴
Moving on...
3/ PAYROLL
If you pay your workers as 1099 Contractors then you don’t have to
- keep track or pay payroll taxes
- pay benefits
Otherwise you will more than likely have to collect 7.65% of your employees salaries along with 7.65% of your biz profits & send to the IRS...
If you pay your workers as 1099 Contractors then you don’t have to
- keep track or pay payroll taxes
- pay benefits
Otherwise you will more than likely have to collect 7.65% of your employees salaries along with 7.65% of your biz profits & send to the IRS...
To solidify your relationship with any people who do work for you, you will want to have a contract.
If they’re going to be paid as a 1099 employee, send the an Independent Contractors Agreement.
If they’re an employee, make they sign an employment contract.
If they’re going to be paid as a 1099 employee, send the an Independent Contractors Agreement.
If they’re an employee, make they sign an employment contract.
While those agreement may won’t protect you 100% (think the whole uber independent contractor situation) they’re your best bet.
If you want more guidance on Employees vs. Contractors check out what the IRS has to say about it.
irs.gov/newsroom/under…
If you want more guidance on Employees vs. Contractors check out what the IRS has to say about it.
irs.gov/newsroom/under…
Okay so we’ve gotten through some of the basics.
Get the original tweet to 100 RT and I’ll drop more information on
- Profit & Loss Statements
- Balance Sheets
- Cash Flow Statements
- How to Drastically improve your chances of Getting a business loan.
Get the original tweet to 100 RT and I’ll drop more information on
- Profit & Loss Statements
- Balance Sheets
- Cash Flow Statements
- How to Drastically improve your chances of Getting a business loan.
...alright I’m back. Thank you for getting this thread to 100+ RTs the next milestone is going to be 500 RTs...but let’s GET BACK TO IT
Let’s start w/ a Warren Buffet Quote
“Dont save whats left after spending; spend what is left after saving”
What does this mean for your biz?
Let’s start w/ a Warren Buffet Quote
“Dont save whats left after spending; spend what is left after saving”
What does this mean for your biz?
The point of your business is to generate profits for YOU the owner
Best strategy, is to take your profits out of your income first but we covered that already in earlier parts of this thread
The second most important thing is keeping track of how you're doing financially 👉
Best strategy, is to take your profits out of your income first but we covered that already in earlier parts of this thread
The second most important thing is keeping track of how you're doing financially 👉
4/ FINANCIAL STATEMENTS
The two main financial statements that you'll need for your business are the INCOME STATEMENT and THE BALANCE sheet.
Income statements track Revenues, Expenses and Profits.
Balance sheets track Assets, Liabilities, and Accounting Net Worth.
The two main financial statements that you'll need for your business are the INCOME STATEMENT and THE BALANCE sheet.
Income statements track Revenues, Expenses and Profits.
Balance sheets track Assets, Liabilities, and Accounting Net Worth.
The EASIEST way to make an Income Statement is using the cash accounting method.
Ex:
Go through your Bank Statements
Add up all your revenue deposits.
Add up all your expense deposits.
Subtract your total expenses from your total revenues and you have Net Profit. (Simple)
Ex:
Go through your Bank Statements
Add up all your revenue deposits.
Add up all your expense deposits.
Subtract your total expenses from your total revenues and you have Net Profit. (Simple)
The EASIEST way to make an Balance Sheet
Ex:
List all of your Assets w/ the original purchase price.
Add Assets.
List all your Liabilities & how much you still owe.
Add up the Liabilities.
Subtract Total Asstes from Liabilities and you have your business Net Worth!
Ex:
List all of your Assets w/ the original purchase price.
Add Assets.
List all your Liabilities & how much you still owe.
Add up the Liabilities.
Subtract Total Asstes from Liabilities and you have your business Net Worth!
The last financial statement I'm about is the Statement of Cash Flow. One look & it will tell me a lot about your business.
It shows you how much cash is flowing through the business from
Operations (Income)
Investing ($$ from Investors & Investments)
Financing (Loans)
It shows you how much cash is flowing through the business from
Operations (Income)
Investing ($$ from Investors & Investments)
Financing (Loans)
NOW If you want to DRASTICALLY improve your chances of getting approved for a business loan...
BUILD BUSINESS CREDIT
And if you want more free information on business credit, I'll be hosting a FREE webinar on that in the next week.
Sign up here: airtable.com/shrWr1o3yxo2vj…
BUILD BUSINESS CREDIT
And if you want more free information on business credit, I'll be hosting a FREE webinar on that in the next week.
Sign up here: airtable.com/shrWr1o3yxo2vj…
Now if you want more GREAT Information like this thread.
RT & tag your friends and tell them to RT in the first tweet. I've reposted it below for convenience.
Get it to 500 RT and i'll drop a thread on another business related topic.
👇👇👇👇
RT & tag your friends and tell them to RT in the first tweet. I've reposted it below for convenience.
Get it to 500 RT and i'll drop a thread on another business related topic.
👇👇👇👇
Not sure why this cut off but it continues here:
An older thread of mine.
