A big part of figuring out what your total business income is will involve figuring out where your expenses are coming from. And that is a whole can of worms depending on the size and complexity of the operation you’re trying to run.
Especially if you’re starting out trying to figure out business expenses on your own, a few things that you need to do include unpacking your mortgage payments, learning basic accounting, organizing your overall business plan, and being sure to separate business and personal expenses as you doing your overall reporting. At least moving through those four categories will give you better handle on your financial flow.
Unpacking Mortgage Payments
Calculating your mortgage on a brick-and-mortar building is a massive part of your expense accounting. Most people have a pretty good idea of how to work with the mortgage that they have on their home, but when it’s a business expense, there are number other factors that have to be considered. And if you haven’t bought the building that you’re running your company out of, there’s a different set of equations involving rent. So before you can get a good idea of your overall financial income, you have to make sure that you’re deducting your mortgage or rent expenses accordingly.
Learning Basic Accounting
It can never hurt to learn basic accounting either. Though when you initially learn how to set up your columns of income and expenses, it may feel like you’re learning an alien language, if you practice enough you’ll get much better at it. And once you learn how to balance all of your accounting processes, that will have an immediate effect on your ability to understand your personal business expenses. Especially when it comes to topics like devaluation over time, knowing concrete values in an accounting format can be extremely helpful.
Organizing a Business Plan
Many people never sit down and completely organize their business plan. And this is a significant disadvantage if you never go through this step. A big part of constructing the business plan is having short and long-term versions of your financial income and expenses. Even though these are just estimated numbers, understanding how they work together will help you when your actual numbers come in.
Separating Business and Personal Expenses
It is absolutely vital these days that you separate your personal and business expenses. Make sure to have separate bank accounts. Make sure to have separate cash accounts. Make sure that they are completely in different universes. As soon as you start mixing personal and business money together, all of your numbers are going to go crazy, and you’re not going to get a legitimate understanding of what kind of profits you’re making or what kind of debt you’re in. The bottom line is to ensure that there is no crossover where you intend to create a barrier.