– Budgeting Tips from George Bluth, Sr. –
This blog post is a small homage to Arrested Development, one of the best shows to ever grace the television set, and it has to do with budgeting your money. We’ll make it short and sweet.
When we first started our business, we kind of flew by the seat of our pants, not really planning ahead much and definitely not stashing away enough money for expenses, products and taxes. Reality set in really quickly the day we got our first tax bill. It was the wake-up call we needed to get our act straight.
Here’s what we did. It’s super-simple and has absolutely saved our butts every year since then.
- Set up a separate account from your business account (if you don’t have a business account separate from your personal account already, stop reading this right now and go do that. Seriously, it’s crazy-important) and call it “Products and Taxes” (or call it “Banana Stand”, if you want to keep with the theme here).
- At the end of each week, move enough to cover your income taxes for that week, as well as enough to cover the cost of any products that were ordered that week. For us, this was 15% for taxes and 35% for our products (assuming a 35% Cost of Sale at the time). We’re now operating around 20-25% COS, but we still move 35% so that it feels like we get a refund when tax time comes around
- So, for us, that means we split everything that comes in each week right down the middle (15% + 35% = 50%) and transfer half of it over to our Products and Taxes account.
- While you’re at it, go ahead and transfer any sales taxes you collected that week as well.
Now, when it’s time to buy that album for your wedding client or time to pay the man, you can rest assured that you’ve set aside the money you need to cover those expenses.
A small warning: by the time the end of the year comes around, your “banana stand” will have quite a lot of money in it. Leave it alone, resist the temptation to burn through it. (<— see what I did there?)