The Financial Foundation That Sets Your Creative Business Up to Last

Welcome to the Creative Mind Smart Money Podcast, where we turn financial confusion into creative confidence. I'm Samantha Ek, the keeper and fractional CFO for creative entrepreneurs. Each week, I'm sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you'll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations. Your next chapter starts now. Hello, hello, hello, friends. And today we're going back to some basics and asking ourselves what a healthy business financial setup looks like from scratch. So when you start your business, what do we really need to be looking at/what do we really need to be setting up so that we can have a really good financial, I don't know if I want to say backbone, but a really good financial like seed so that your business can sprout and grow and just become something so extraordinary and so beautiful like I wanted to be. When I first started my business and I'll actually throw this back to even just my creative businesses, when I first started my creative businesses, like I said in the personal episodes, I didn't have any of the stuff set up. I didn't have anything really good set up. When I set up my bookkeeping business, I had taken a course so there was a whole bunch of advice on what to set up. First things first, I did make sure I got a business bank account. I think my very first business bank was bluevine if I'm not wrong and it wasn't like anything crazy. It was just a bank account and it was a business bank account. I got my quick book set up and I made sure that I got all of my startup costs in there via journal entries and things like that to make sure that I actually had all that in there before I forgot about it because I think there's too many times often enough where when we start our business, we forget about all the costs that we front ourselves that are not in a business account that are not calculated for us that we need to actually account for and consider as business expenses because the cost to set up your LLC if you pay for that out of pocket and your first hand is still a business expense. That's just how you actually get it recorded. Most creatives, when they are first setting up their business, completely skip the bank account part. They don't have any sort of accounting software and they don't really consider any sort of financial setup to begin with. They just get started. They set up Etsy, they get started creating, they get started selling on Etsy and then all of a sudden their money is funneling into their personal account and now they can't tell the difference between what is business funds and what is personal funds. Same thing with Amazon. Maybe they'll start purchasing things through Amazon for their business but they also purchase personal things through Amazon for their business. Now they can't tell what's business expenses versus what's personal expenses. Even having a separate business, Amazon is very important or just having an understanding and being like, "Okay, this is a business purchase. This is a personal purchase having some sort of way of separating the two of them, whether that's downloading receipts or whatever." The foundation, obviously the foundation, when we first go started with our business, what do we need to set up? What needs to be done immediately? Immediately open a business bank account. It doesn't matter where it is and honestly, I've had episodes on this before about business banks so I'm not going to go into too many details. One of our very first episodes was what kind of business bank to open so I don't want to rehash a lot of that but I do want to advise you that it does not have to be a bank at your current bank. It can be something free that you can open just to start tracking your income and having a place and then if you want to open a different bank account later, you totally can. But there's tons of free online banks out there that are business banks like Bluevine, like Relay, like Novo. I think there's another one called Mercury. There are so many different ones out there. Explore your options. Open a bank account. It's so easy. It takes 10 seconds. Then you have a way to track your income and your expenses. Will you be spending money in your personal account for a while? Absolutely. Because until you bring in money, there's not really any space to do that. You can, of course, deposit. Let's say you want to give yourself $1,000 in your business, deposit $1,000 into your business account as spending money and then put all your expenses in there. That's totally fine. That's an owner's contribution. I've seen so many people do that that way but I think naturally when you first have your business and you're first setting things up, it's completely and totally natural to spend money from your personal account on your business because you're in the startup phase where you're getting started, you're getting everything set up, you're getting everything ready. First things first, get a bank account and get that set up. Of course, because it's so important to separate business and personal immediately from the get go. You might be looking at me saying, "Savetha, you've talked about this so much, I don't think it's really that important." It's so, so, so important to be able to separate the two of them. The reason being is because if you have, you know, the Amazon example, for example, if you are purchasing stuff from Amazon and you have, I don't know, maybe you purchase something every single day from Amazon, maybe if an Amazon or every single day and now you start adding business orders on top of that, maybe a box is maybe if things like that that you're ordering from Amazon. Imagine at the end of the year you did not do that. You did not separate your business from personal. You now have to sift through thousands of Amazon transactions, thousands to figure out what is business and what is personal. Imagine the stress and the pain and the just complete terror that you're putting yourself through during tax season to separate the two of them when it could have taken you 10 seconds to do that when you first started. But also, you could be missing out on those expenses and those expenses are deductible, right? It's so important to separate the two of them because you need to understand that. And let's say you're the type of person who is a spender and you have thousands of transactions in your bank account every month, is that something you really want to be doing in tax time sitting down and looking through all your bank statements and saying this was business, this was personal, this was business, this was personal. But then also are you going to remember seven, eight, nine, ten months down the road, what was actually business versus what was personal? Are you going to remember if that Amazon or that Walmart trip was business or personal or if that coffee that you picked up, did you have a coffee with someone or was it just with yourself? Because if it's with someone, it's deductible like a networking meeting. But if it's just yourself, it's not deductible because it's especially as a solo printer, you can't just go ahead and deduct coffee. That's not something that you can actually do because you're not, you know, the IRS is very strict rules around that. But we're not really questioning the deductibility here or whatever that is. I just want to make sure that when you get to that point, you have all those deductible expenses listed. But then you also have a realistic perspective of your business and its success, right? Because if you're spending thousands of dollars in your personal account, but you're not accounting for that in your business bank account or in your accounting software, you're never going to know if your business is actually successful or not because you're not seeing the full picture. Okay. So then of course, we want to talk about our bank accounts. So how many bank accounts does a business need? Logistically, from an accountant's perspective, I would consider either having two or three accounts. I would not consider having more than that. I understand that profit first has five. I think I've mentioned this before, but I'm very anti-profit first. There are a lot of accountants who live and breathe and die by it. I hate it. I tried it myself. I cannot handle it. I do not like it. Having that many accounts as an accountant as well and having to reconcile that many accounts and handle all that is a nightmare and a half. And you doing it on your own is just a whole other nightmare. I'm not saying it's a bad system. It works for some people. It does not work for everybody. Do not try and force it on someone if they do not like it. I've had this too many times. I'm just going to say it right now where people are like, oh, but if you do it this way or if you do it through relay or whatever, you know, it works. If a system doesn't work for someone's brain, it doesn't work for someone's brain. It's as simple as that. Every person is different. Some things work for some people. Some things don't work for some people. So while profit first might be a great system, it is not made or designed for everyone. Well, YNAB might be an amazing budgeting system. Some people hate YNAB. I love it. That's okay. There's nothing wrong with that. There's a system for everybody. Now personally, I think you need three bank accounts. You need a main operating account. This operating account is where all of your expenses live. It's where your subscriptions come out. It's where your payments for your bookkeeper come out. It's where your payments for other people come out. Something that you have that is expenses will come out of this account and your income will also flow into it. That is your operating account. I then think you need to have a separate tax account. This is an account where maybe when your income comes in, you have an automation setup where it automatically moves 20% into a tax account so that you're already accounted for. You're not even worried about it. You don't even see that money. It's gone. It's in your tax account. When it comes time to pay your quarterly taxes, you can go ahead and pay it. It's paid. You don't even need to worry about it. You got it all covered. You know what? If you end up paying extra to the IRS because you'd already set aside that money maybe and maybe your partner works in normal W2 job and they paid more in taxes that you didn't really need to worry about, then it happens. But at least you were already setting aside the money. You already paid the IRS. You don't owe money at the end of the year. Very important. The third account I think we all need to have is a savings account. It is an emergency savings account. Just in general, a savings account. I think setting aside $1,000, $2,000, whatever you have three months of worth of expenses in there is very important. And then of course you can use those funds. if you need them, but they're there for emergencies. It's there so that maybe if you had a great month, one month and you're gonna have a terrible month next month, you have a backup fund there. And those are, I think, the three accounts. Now, I don't think one account works honestly, and 110%, I do not think that one business bank account works. There are some of the people who maybe it does work for some people, but I think there are too many business owners who look at their bank account and say, "Oh my gosh, I have $15,000 in there. I'm gonna spend it." And then they don't realize that maybe 5,000 of that needed to be allocated towards taxes. They spend that 5,000. All of a sudden taxes roll around. They don't have that $5,000 anymore. So having those separate accounts allows you to be able to kind of know when you need to pay each thing. Maybe having that tax account means you're not gonna spend that $5,000 that you might have need to have had in your bank account. So that's a very important step in a financial healthy business. So obviously banking is a one step, but then your next natural step is by keeping slash accounting and making sure that you are setting that up. A lot of people ask, "When do I need to start tracking all that stuff?" And honestly, immediately, it's as simple as that. Whether it's a spreadsheet, whether you are getting a free accountings offer, like Wave, I can't remember if there's other free ones. I know Wave doesn't even connect to your bank account anywhere you have to actually pay for that, but there's a bunch of ones out there where you can just like track income and expenses. I know NOVO has like category tracking. Doesn't necessarily show your profit and loss there, but that's definitely something you do. I would definitely suggest though, just even getting a basic spreadsheet and writing down just your expenses and just your income. And that's before you even make any money because you need to understand all of that stuff. You need to keep track of it. And even if you just have like a folder for your receipts and everything, just having something set up, some sort of system set up so that you can track all that so that when it comes down to the point where you actually need to start doing regular bookkeeping, where you actually need to understand what's going on in your business, you already have some sort of system set up. Don't wait for this. It's so important to start doing it right from the beginning. And again, the simplest way to get started so that you're not over complicating it is literally even just having a bunch of receipts, downloading your invoices and saving them, like setting up a simple spreadsheet that says expenses at the top, where you spent the money. So Amazon, what the money was spent on, you know, boxes for shipping. And then how much it was, simple as that. You do not need to over complicate this. When you first get started, there's not a lot of bookkeeping that needs to be done, but you need to actually be able to just track that so that when you do need a lot of bookkeeping to be done later on down the road, you have a way of understanding what all that was because obviously you're gonna want all that data in a two-a-system. So it's very important to just keep track of that from the beginning and don't over complicate it. Just make it very, very simple, very easy to understand and very easy for you to not feel overwhelmed with, right? You just want something that's simple. Now, what does a proper owner's pay setup look like for someone who is maybe just a single business owner? Because of course that's something that we wanna get set up as well. You wanna get set up your bookkeeping, you wanna get set up your banking, but you also wanna make sure that you are paying yourself from your business. You don't just wanna get started, and then, you know, you're bringing a money and you're just consistently funneling that money into your business because it's gonna drain you really fast when you don't get some sort of payback from that, right? You don't get some sort of pay. Now, I always tell my clients to work backwards and I think I talked about this in a separate episode about paying yourself first. It's to work backwards and determine how much you need to survive. So maybe you have a partner and maybe that partner pays for a lot of your funds, so you don't need as much money. And maybe you're like, okay, you know what, I don't actually need anything to start off with, that's great. But maybe you're like, okay, I would like to at least pay myself $500 a month. You have a client that's $1,000 a month. Okay, now you know that you only have $500 a month for expenses, right? So that $500 a month for expenses will include any software subscriptions, anything like that. So if you have $200 in software subscriptions, you're like, okay, I'm gonna have $300 a month to pay for whatever else. And knowing that you need at least $500 a month is going to help you get that set up. Now, a way to pay yourself is so simple. Do not over-complicate this. There is no need to write yourself a check. There's no need to do it. You can simply transfer yourself money. Well, there is an ACH, whether it's Zell, whatever it is. If you want to write yourself a check, fantastic. But you can literally just transfer yourself money through an ACH through Zell, whatever it is. And a lot of people do skip paying themselves. And it's so important that you don't. Because there's too many people who are like, oh, you know what, I don't need to worry about it. I don't need to pay myself. I'll just continue to funnel that money into your account. Six months down the road, they're like, what am I even doing this far? I'm not getting paid. You know, like, I'm burning myself out because it's all work. There's no reward, right? Like, you started this business obviously to make some sort of money. And of course, you know, money doesn't have to be your primary goal when it comes to this. But you started this business to bring in money to support your family or whatever that was to bring a certain amount of money. So paying yourself is so important to making sure that you're set up for success. Okay, our last kind of topic that we want to talk about is obviously taxes. So, you know, to have a financially successful business, a financially good setup to start with, we want to have a good bank account. We want to have good bookkeeping. We want to have a way to pay ourselves. We want to make sure we're kind of set up for success. The final thing is obviously taxes. And so like I said, setting up a bank account for your taxes is important. But setting aside enough for your taxes is also important. You know, usually with my clients, we set aside 30%. Obviously that's a very large chunk. Most of the time actually most of my clients end up getting refunds when we pay 30% because it's not necessarily the you need 30% especially like I live in Texas. In the state of Texas, you know, you need, you don't have state taxes. So maybe it's only 20% that you need to set aside. But we've been paying 30% all year. Of course, that ends up coming back and we're like, okay, well, we didn't need to pay that much. We got to refund from it. But on the other hand, understanding that we also want to make sure that we are setting aside that many. So you don't even need to have a CPA. You just want to be making sure that if you have that tax bank account set up, just transfer. Whenever you get income, you can even set up automated transfers where it like, you know, splits off 20%, 30% into your banking out. And honestly, do what feels comfortable to you. If 20% is what feels comfortable for you, then do that. If 25% feels comfortable for you, do that. If you're like, you know what, no, I'd rather just get over refund at the end of the year and do the 30% and I know it sucks giving the IRS your money and waiting for them to give you back money. But at the same point, it would not feel better, you know, to get money back from the IRS than to be paying them more at the end of the year. There's always that double urge sort that I tell my clients, right? And then the one thing that I wish a lot of people knew about taxes that they don't. And I think too many creatives think of one there kind of like starting the business and starting to get paid is that quarterly taxes are not paying extra taxes, okay? And want you to just hear me, I've talked about this on my quarterly taxes. So they are not paying extra taxes. It essentially means that at the end of the year, if you owe $20,000 and you paid $19,000 throughout the year in quarterly taxes, you now only owe the IRS that $1,000 in April, okay? You're not gonna pay another $20,000. You've already paid them $19,000. You just owe them that last $1,000 and then you're good. So during quarterly, and they do this because otherwise they'll penalize you, right? Because essentially they could have had that $5,000 every quarter except you wait until the end of the year to pay them. So quarterly taxes are just so that they can make sure that they are getting the taxes from you in a timely manner and not having to wait to get those taxes paid, right? 'Cause obviously the IRS needs funds too to be able to do things with and I'm sure they use those funds for refunds, whatever it is to pay their employees. So just having that all set up properly is very, very important. So maybe I was saying to this, and you already have a business, you already have a business set up and you don't have half of the stuff set up. So you're like, oh Samantha, I don't know what to do. Like I started my business. I don't have any of this set up. What do I do? Okay, breathe, first of all. First step, first things first, get a business bank account. Please, you will be so thankful you do this. Even if it's just one to start and then you get the other two accounts later, get a business bank account. Separate your business from personal. That is the very first thing you need to do. And if you already have a business bank account, but maybe you don't have accounting, start tracking it on a spreadsheet, make it really simple and make it really easy for yourself. Write down who you're paying, who's, you got money coming right down, where you're getting stuff paid for up. Just write it down so that you're able to track that. And if you're not paying yourself, you know, figure out what you need to make yourself comfortable and then work back on what's been there. Maybe you need to cut down on some expenses to be able to pay yourself properly. Maybe you need to, you know, bring in more to be able to pay yourself properly. Whatever that is, just make sure that you're keeping track of that. And if you haven't set aside for taxes, then start doing that today. So, you know, little steps that you can take towards doing that. If you do not set this up from the start, this does not make you a financially unhealthy business. That just means that you need to start getting those systems in place now, so that down the road you have a much more financially healthy business, right? So we want to do this now. If you guys love this episode, please like it, share it, subscribe, share it on social media. Let's, somebody else know about this podcast so we can get more people in on it, more ears on it, more listening. And if you guys have a topic suggestion, feel free to message me on Instagram, threads, whatever it is so we can chat about it. As always you guys, I do wish you the best week ever. I will see you next week. Farewell, fellow travelers.