THE LOWDOWN ON MANAGING YOUR BUSINESS MONEY

I am asked all the time about how to manage a startup or sidegig’s finances.  Though I’m no accountant I’ve weighed in on the topic, including money-related things you need to know before you begin.

But what I’ve avoided are the nitty gritty specifics. Instead of digging into the details myself, I started looking around for an accountant that specializes in startups and side businesses who could share expertise on the blog. That’s how I stumbled across Chris – kind and raving reviews about him landed in my inbox and I had found my man.

So, I’m handing it over to Chris Peden to give us the basic lowdown on managing your sidegig money:

Now that you have gotten started with your business, you need to start keeping track of the money that goes in and out.  With all the information out there about what to do with your finances, you may get confused about how to start.  Let’s take a look at some of the first things to do when setting up your finances.

Get a Business Checking Account
This may seem a bit of overkill.  You have a bank account already.  Why do you need a second one?

Here’s the thing: Combining your business and personal transactions makes it harder to keep track of your business income and expenses.  

Additionally, it is harder to prove to the IRS that transactions are business-related if they are written on your personal account for something that you could use outside of your business (such as a meal).  By getting a separate bank account, you can keep track of your business transactions easier, and make a better case for deducting them.

Setting Up the Financials
There are a lot of ways to keep track of your finances.  You could get some financial software such as QuickBooks or use an online system.  However, these may cost money and can be hard to use. 

When you are just starting out, you could just set up a simple spreadsheet in either Excel or Google Docs.  Here is how you would set it up:

1. Label the first tab “Money In”
2. On this tab in the first row, label the columns as follows:
         > Date Charged
         > Client
         > Amount Charged
         > Date Customer Paid
3. Label the second tab “Money Out”
4. On this tab in the first row, label the columns as follows: 
         > Date
         > Vendor (who you bought from)
         > What was purchased
         > Amount spent
         >  Category

So what are the categories?  Here is a brief overview of the ones you could choose from.

  • Advertising
  • Inventory
  • Cost of labor to make inventory
  • Materials and supplies to make labor
  • Car and truck expenses
  • Commission and fees
  • Contract labor
  • Office equipment
  • Employee benefit programs
  • Insurance
  • Interest
  • Legal and professional services
  • Office expenses
  • Pension and profit sharing plans
  • Rent or leases
  • Repairs and maintenance
  • Office Supplies
  • Taxes and licenses
  • Travel
  • Meals and entertainment
  • Utilities
  • Wages
  • Ask Accountant (for when you have no idea how to classify something).


When the end of the year comes, and it’s time to do your taxes, you can send the file to your accountant, who will add up all the categories and use the totals to complete your taxes, and draw up your financial statements.

Setting up a Budget
The word budget conjures up all types of fears.  Many of us have been through long retreats where we spend a weekend putting together a budget only to have it be absolutely worthless when we are working with our customers.

But in reality, a budget doesn’t need to be all that time consuming.  Try this approach:

1. Set an income goal for the year.  How much money do you want to bring in from your customers? What products or services are you going to provide for them?

2. Now that you know the products or services you are going to provide, take a look at the categories above.  How much do you have to spend on each to provide the product or services your clients need?  These would be your budgeted expenses for the year.

3. Your income goal less the projected expenses would be your net income for the year.

Now things get a bit trickier: You will need to project your income by month. 

For this section, you will want to put as Income the number of customer payments that you expect for the month.  Keep in mind that not everyone pays on time.  Expect some lag time between billing and receipt of cash. 

Next, for each month, think about what you will have to pay out during the month for those expenses to keep your business going.  You will now be able to tell when you may need to dip into your savings for some cash to keep it going, or when you can sock some cash away.

If you have any questions, drop me a line at chrispedencpa@yahoo.com, and I will be happy to answer them.

More about Chris:
Chris Peden, CPA, CMA, CFM, is committed to helping people live their dream of owning a business. With 15+ years experience helping people and companies organize and make sense of their finance information, he can help you understand the rules and thrive in your business. He can be reached at chrispedencpa@yahoo.com or CMP Financial Consulting.