Managing Financial Records When Self Employed

By Alden Smith

Being self employed is the dream of many Americans, yet few know the extra burden upon those that work for themselves when it comes time to pay bills. When you work for yourself, there isn‘t a payroll department to handle tax deductions, make deposits into a retirement fund, or deal with a health insurance plan. Before any business is started, it is good advice to have at least 6 months worth of money in the bank for bills, and to have a very good business plan in place before starting out. Be very cautious of starting any business unless these things are in place. Managing bills for both a business and personal use can be difficult at best. Here we discuss managing your bills when self employed – some handy resources, and ideas from the experts. 

Useful Resources

As a self employed person, it is almost mandatory that you keep two separate banking accounts – one for the business, one for you. These accounts should ideally be linked together, with real overdraft protection, not the customary courtesy overdraft or bounce protection that most banks offer as a “courtesy.” With the courtesy protection offered by the bank or credit union, they certainly will cover a bounced check – to the tune of a $30-$40 NSF charge. Use the business account, along with an ATM card that also acts as a credit card, to pay business expenses. This is especially important when paying bills online. Keep the bulk of you money in the business account, and only transfer money to personal account to pay unrelated business bills and for such things as groceries and gasoline. The advantage of this is that you get two separate statements from your bank – one for business and one for personal. At tax time, it makes things much simpler to determine business expense when you have a statement that only reflects business expenditures. 

Receipts And Invoices

Keep all business related receipts separate from personal.  People have a tendency to throw all their receipts into an inbox and then when it comes time to determine which are relevant to business, haven’t a clue.  Store these receipts in a manila envelope, clearly marked as business expenses, and keep them separate from personal ones.

Resources

One of the best resources you can purchase for tracking financial records is Quicken Quickbooks.  Although pricey, it is the best way there is to manage and control expenses.  If you purchase Quickbooks, I highly recommend that you take a hand’s on class from a certified instructor to save yourself a lot of grief.  It is not because Quickbooks is so hard to learn – it is simply because it is one of the most powerful financial software around. As in all financial records, make the task as simple and user friendly as you can. Doing so will save a lot of grief down the road, especially at tax time.  Deal with bills, receipts and records immediately.  You will be a lot happier at tax time.

Alden Smith is an award winning author and regular contributor to DoItYourself.com. He writes on a variety of subjects, and excels in research.