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We all love to celebrate a founder who bootstrapped their way to the top. 

• MailChimp was built in-house by a design agency. 
• Sara Blakely funded Spanx with $5,000 of her own money, got into Neiman Marcus, and never looked back. 
• And the GoPro guy (Nick Woodman) moved back in with his parents to get his now-billion-dollar company to its initial public offering. 

Many early-stage entrepreneurs buy into the allure of being the next bootstrapped billionaire. A few of them actually make it, too. But behind every bootstrapped business is an owner who may be putting their business’ health at risk.

Bootstrapping definition

What is bootstrapping in business?

Bootstrapping is self-funding your business. You use your own savings and earnings to keep the business afloat—through the highs and the lows—in the hopes of achieving success without a business loan or early-stage investors. To fund business expenses, bootstrappers tap into money on hand, including savings and personal credit cards, as well as 401(k)s, second mortgages, and, of course, reinvesting their income. They may also work a day job while they grow their small business at night, or vice versa.

Why bootstrap?

Why would a founder bootstrap their company?

You have an idea. It’s good. And when that idea is to start a business, it’s not unusual for the business owner to turn to the easiest-to-access resources: their own funds. In fact, getting a startup loan often requires a six-month history in business (there are, however, other financing options beyond loans). So it can make a lot of sense to self-fund a business, at least for a while. 

Additionally, there are some very small businesses that legitimately don’t need outside capital. Non-medical professional services firms are a good example. A solopreneur lawyer, accountant, copywriter, or talent agent might only require a laptop, website, and cell phone. A family business where each family member contributes to the final product and sales may be able to support itself. However, in both of these cases, growth may be limited.

Pros And cons

Pros and cons of bootstrapping.

So is bootstrap financing the right option for your business? There are several pros and cons to consider when making a decision.

Pros of bootstrapping.

Self-funding a business allows for complete control of operating and growth decisions, which comes in handy in the following situations:

You have a client you want to drop.

If you're self-funded, the only person you need to convince that you should fire that client is you.

You see an opportunity you want to pursue, like a service-for-equity situation.

The most famous example of this is the artist who took shares as payment to paint Facebook's first office. His share wound up being worth over $200 million.

You have personal values or beliefs that you're not willing to compromise.

This was the case with Chick-fil-A. In fact, the founder has forever forbidden the company from going public so it continues operating within its founding principles.

The dream of DIYing everything is strong.

It's hard to ignore a great story of founders who grew an entire business themselves. Look at Gorilla Glue, which is still a family business, and Qualtrics, which was self-funded by two brothers for 10 years before selling for $8 billion in cash.

Cons of bootstrapping.

Allure aside, self-funding a company can be an uphill battle. One batch of supplies for a big project can exhaust a savings account, particularly when high inflation chips away at your budget, and running a full business as a side hustle can only take you so far. Those, by the way, are just the tip of the iceberg. Here are some other things you risk:

Burning out

Burnout is probably the most common danger of bootstrapped companies because it can lead to serious mental or physical health problems. And it’s not just burnout from long, lonely hours. It’s the stress of liquidating your investments, not getting the deal you were banking on, or simply having no time to yourself. This is particularly risky for business owners who work a day job and build their business during their off hours. While growing a side hustle into a full-fledged business can be done successfully, continuing this way too long can be hard to bear.

Running out of money.

It would be great if money were an unlimited resource, but it’s not. And unexpected expenses or increases in costs can wreak havoc on the best budget. The biggest shock? Sometimes it comes simply from the increased expenses associated with growth. Emergencies like property damage, illness, or other unexpected shutdowns can also thwart the best-crafted plans. If the only fallback is a personal savings account, staying in business may not be practical. Running out of money is one of the main reasons small businesses fail.

Not having the money to take advantage of opportunities.

A lack of capital can limit growth and the ability to seize opportunities, launch products, and take chances. For example:

• You may not be able to upgrade your factory without equipment financing. If you turn it down, your competitor will take it, upgrade their factory, and leave you in the dust. 
• You may be forced to let your best employee walk without taking a business line of credit to offset their new salary demands as your revenue grows. If you don’t pay them what they want, you’ll take a hit on irreplaceable talent, which will eventually affect the customer experience.
• And what if you’re invited to pitch what could wind up being your best client, but you need $20K to do it properly? Without a short-term loan, you may have to pass and always wonder what could have been.

There are solutions.

So what do you do when you’re starting a business but don’t have a large cash reserve? Bootstrapping is still a great option, but you may also want to consider investors or partners. Additionally, there are financing options available to newer businesses, too, that can help a business owner take advantage of opportunities as they arise or even simply be prepared–just in case the money in the self-funded bank account starts to run a little low.

Lendio facilitates financing for small businesses, including SBA loans, lines of credit, cash advances, and more. Learn more about small business loan options for your business.

As a small business owner, it’s easy to get caught up in day-to-day operations and neglect things like revenue forecasting. That can cause problems though, especially as your overhead goes up and you need to scale at a certain rate to stay profitable.

Fortunately, once you’ve made a few forecasts and established your systems, regularly projecting your company’s revenue becomes a lot more achievable. Here’s what you need to know about the steps involved to get started.

What is Revenue Forecasting?

Revenue forecasting refers to using historical data and educated assumptions about your business, industry, and the economy to estimate your company’s future gross sales.

In other words, it involves the combination of quantitative and qualitative information to create models of how much your company is likely to earn. 

You can then use the models to plan by tweaking inputs that reflect decisions, outcomes, and external variables.

Revenue is a high-level metric, but it has significant implications, such as:

• You need it to set realistic business budgets
• It’s largely responsible for your company’s general profitability
• It can quickly express the scale of your business or market share to a third party
• The way it trends over time represents your company’s growth or lack thereof

Because revenue impacts many aspects of your business, forecasting it is highly beneficial. Your projections can help you make more intelligent business decisions, win over prospective investors, and set appropriate long-term goals.

For example, say you’re debating whether or not it makes sense to have your sales manager expand the sales team in the coming months to keep up with an anticipated spike in demand.

With a sophisticated revenue forecasting model, you could project the impact hiring salespeople would have on your company’s earning power. Comparing it to the expense you’d incur to hire them would tell you whether they would be healthy for your cash flow.

How to Forecast Revenue

You’ll need to do a lot of preparation before you can use any revenue forecasting methods. Let’s look at the most important steps to take.

Build Accurate Financial Statements

Before you can start trying to predict the future, you need to have an accurate picture of your past. In financial management, that means building a reliable set of financial statements, including a balance sheet and an income statement.

Almost every sales forecasting method relies on historical company data to some degree. Without concrete numbers to rely on, you’re making guesses with little basis in reality.

If your company is too young to have sufficient data, it'll be harder to create an accurate forecast. You may be able to use numbers from similar companies and tweak them, but your projected revenue will be inherently less reliable.

Document the Context Behind the Numbers

Your company’s historical data tells an important story, but it’s ultimately an incomplete one. You'll also need some context to supplement your quantitative forecasting.

Take the time to document your business plans, the lessons you learn from mistakes, and the reasons behind your decisions. They can help you decipher your revenue numbers and factor any improvements you make into your future sales projections.

It’s also beneficial to perform regular variance analysis and investigate the differences between your expected and actual numbers. Once again, the things you learn can help refine your future forecasting.

For example, say it’s the end of 2025, and you want to forecast your revenue for 2026. Your business is seasonal, so you use forecasting methods that base each month’s revenue on numbers from the same month in the previous year. 

When you estimate your March 2026 revenue, you see that you had a slight drop off in sales last March. Without any context, you might assume there’s some seasonal reason for this, which would skew your projections downward.

However, upon checking your notes, you see it was because your sales leader and best sales rep left the company that month. Since that isn’t a recurring revenue issue, you can adjust your forecast to reflect better March numbers than you saw last year.

Pick a Spreadsheet or Software

Once you have the information you need to start forecasting your revenues, you have to decide whether you want to use a Microsoft Excel spreadsheet or financial forecasting software to do so.

Spreadsheets are the traditional choice and give you complete control over the forecasting process. They let you build your forecasts from the ground up, and you may develop greater insight into all of the factors affecting your sales.

However, building your revenue forecasts from scratch takes significant time and effort, and your models are much more susceptible to human error. If you transpose a number, you can throw off all your numbers and spend hours searching for the problem.

Meanwhile, software streamlines the forecasting process by linking directly to your company’s data. It may also help you manipulate the data more intuitively, but you always give up some degree of control.

Choose Your Forecasting Methods

With all your forecasting information and tools prepped, you have what you need to start the revenue forecasting process. However, you’ll have to choose between many different approaches, and each has its own strengths and weaknesses.

When selecting your favorites, consider which variables they depend on and your current revenue growth pattern. For example, some methods are better for seasonal businesses, while others make more sense for a company scaling at a steady rate.

3 Revenue Forecasting Methods

Here are some popular, easy-to-understand revenue forecasting methods. As you review them, keep in mind that you may need more advanced analytics to get meaningful insights for your business in practice.

For example, you may have to use multiple forecasting methods in conjunction, project each revenue stream individually, or make modifications for external economic factors.

1. Straight-Line

The straight-line method is the most straightforward way to forecast, though that’s not related to the name. Its simplicity can make it one of the less accurate approaches, but it also lets you estimate your revenues with little time and effort.

The straight-line method is best when:

• A rough estimate of your projected revenues will suffice
• You know you won’t take the time to run a more thorough revenue forecast
• Your business has had a steady growth rate for years and you expect it to continue

To forecast future revenue using the straight-line method, just multiply the latest year’s revenues by your company’s historical growth rate.

For example, imagine that the 2022 calendar year is coming to an end, and you want to project your revenues over the next year. In 2021 and 2022, your gross revenues were $500,000 and $525,000, respectively. That equals a 5% growth rate year over year.

To get your 2023 numbers, you’d multiply $525,000 by 1.05, which equals $551,250. If you wanted to forecast further into the future, you’d continue to multiply each year’s annual revenue by 1.05.

2. Weighted Moving Average

The weighted moving average method of forecasting revenue is similar to the straight-line method, but it’s more granular. As a result, your forecast accuracy will often be better, especially over short time horizons.

It makes the most sense when:

• Your business isn’t seasonal
• You have less historical sales data available
• You’re not trying to forecast very far into the future

To forecast revenues using the weighted moving average method, you take a weighted average of trailing data points to predict the next in the sequence. Typically, you’ll place greater weight on more recent data points.

For example, say you have the following gross revenue amounts over the previous four months:

• January: $6,400
• February: $6,800
• March: $7,250
• April: $7,000

To create a revenue projection for May, you decide to use the weighted moving average method. You give 50% weight to April, 25% to March, 15% to February, and 10% to January.

Your formula would look like the following: 

($6,400 x 10%) + ($6,800 x 15%) + ($7,250 x 25%) + ($7,000 x 50%) = $6,972.50

To create a sales forecast for your June revenues using the weighted moving average method, you’d repeat the process by using the months of February through May.

3. Simple Linear Regression

Straight-line and weighted moving average methods involve the manipulation of revenue data alone. Linear regression takes a different approach, instead using the relationship between revenues and an independent variable to make predictions.

As a result, linear regression makes the most sense for your business when you have something you believe is a clear driver of revenues.

For example, say you’re unsure whether it’s worth paying for direct mail marketing. You decide to use linear regression to forecast your sales and get the answer.

You have the following data from the previous year:

Last Year’s Data

Using the average correlation between the two variables, you can estimate that mailing 83.25 letters to client leads generates an average revenue of $7,545. It costs you $500 to send 83.25 letters to client leads early in your sales pipeline.

Say you spend the next year using email marketing instead, then repeat the linear regression with the new data.

If you find that investing $500 in email marketing each month generates higher sales activity and more than $7,545 in revenue per month, you’d know it’s the better marketing tool.

The best method for revenue forecasting is the one that applies most to your business and situation. If one of the methods above seems relevant, just get started! You can always correct course later. 

One downside to being a W-2 employee is that you don’t have access to many tax write-offs. However, if you’re a 1099 contractor, the Internal Revenue Service (IRS) lets you deduct all ordinary and necessary business expenses on your tax return.

That language sounds a bit stiff, but it basically means that you can deduct the expenses someone in your line of business would reasonably need to pay. If you’re unsure what those might be, here are some great ideas to get you started.

Top 1099 tax write-offs

1. Advertising expenses

2. Auto expenses

3. Business insurance premiums

4. Contributions to retirement plans

5. Health insurance premiums

6. Home office expenses

7. Interest on debts

8. Meals

9. Phone and internet bills

10. Qualified business income deduction

11. Self employment taxes

1. Advertising expenses

As a small business owner, you’ll need to find a way to generate interest in your product or services. Unless you have a vast network of pre-existing clients or customers, that means you’ll probably have to advertise your company somehow.

Fortunately, you can deduct those expenses, even if they take a variety of different forms. For example, you might write off the cost of your ads on social media platforms, direct mail campaigns, and business website.

2. Auto expenses

If you drive your car as part of your business, you might be able to deduct some of the expenses you incur for the vehicle. That typically includes things like gas, maintenance, registration fees, and auto insurance premiums.

That said, you can only deduct the portion of your auto expenses that corresponds with your business use. For example, if you have a car you use for business trips 25% of the time and personal trips 75% of the time, you can only deduct 25% of your car expenses.

Alternatively, you can use a standard mileage rate issued by the IRS to calculate your deduction, which involves multiplying your miles driven for business purposes by $0.56 in 2021 and $0.585 in 2022.

If you start with the standard method, you can switch to the actual expense method whenever you like. However, if you decide to use the actual expense method, you have to stand by that choice until you retire the car.

Note that driving to your primary place of work doesn’t count as business use of your car. However, if you typically work out of a home office and take a trip to a client site, that trip would count as business use.

3. Business insurance premiums

As a 1099 contractor, it’s often a good idea to purchase business insurance, though the type can vary depending on your trade. Fortunately, your premiums are tax-deductible, as long as it makes sense that you would need the policy.

For example, you’ll probably need general liability insurance if you work in construction. It helps cover the costs of a lawsuit if you ever accidentally damage your client's property and is often required by state regulation.

4. Contributions to retirement plans

As a 1099 contractor, you don’t benefit from employer-sponsored retirement plans, but that doesn’t mean you don’t have access to any retirement accounts. In fact, you have some great options that employees don’t.

For example, the Solo 401(k) is a fantastic retirement account for independent contractors with no employees. You can contribute the following amounts per year:

• Employee portion: $19,500 for 2021 and $20,500 in 2022. Those over 50 years old can also make a $6,500 catch-up contribution.
• Employer portion: 25% of your net self-employment income up to $38,500 in 2021 and $40,500 in 2022.

Contributing to retirement plans reduces your gross income for the current tax year directly. In addition, the dividends and capital gains you earn within the accounts are tax-deferred, which means you don’t pay tax on them until you withdraw your funds.

Because of the multiple tax advantages of retirement plans, contributing to them is one of the best deductions available to 1099 contractors. In any case, the funds will come back to you someday, and you can’t have too much money in retirement.

5. Health insurance premiums

In 2021, the average health insurance premium for single coverage was $7,739, which works out to about $644 per month. That’s a massive expense, and if you’re a 1099 contractor, you have to pay for it all without the help of an employer.

Fortunately, you can typically deduct the cost of your health insurance premiums, along with whatever you pay for dental insurance. If you have a spouse or a dependent, you can write off their premiums too.

However, there is one significant caveat. To take a business deduction for health insurance premiums, you can’t be eligible for coverage through a spouse’s employer.

6. Home office expenses 

If you run your business out of an office in your personal residence, you may be able to write off some of your housing expenses. That typically includes your rent, mortgage interest, property taxes, utilities, and maintenance.

To be eligible for the deduction, your home office needs to meet two criteria:

• Primary place of work: In simple terms, you have to do most of your business from your home office. If you spend 51% or more of your time working in another location, you don’t meet this requirement.
• Exclusive use: This rule stops you from taking the deduction if your home office doubles as personal space. For example, you can’t claim that your kitchen counter is a home office.

If you pass both tests, you can write off the housing expenses that correspond with the business use of your home. For example, if your home office is 100 square feet and you live in a 1,000 square feet home, you can write off 10% of your actual costs.

Alternatively, if you’d prefer not to track all your home expenses, you can use the simplified method, which involves multiplying the square footage of your home office by $5.

It’s generally best to calculate your deduction using both options to determine which will save you the most money.

7. Interest on debts

As a small business owner, you’ll likely take out a credit account at some point. Fortunately, you can write off the interest that accrues on all of your business debts, whether they’re installment or revolving accounts.

For example, say you’re a freelance photographer and use a credit card to pay for your day-to-day business expenses. If you ever carry a balance over from one month to the next, you can write off whatever interest you accrue as a result.

That's another reason why it’s best to keep your personal and business transactions on separate accounts. If you use the same credit account to pay for both, it can be hard to determine what portion of your interest is tax-deductible.

8. Meals

It might not seem like a meal could be an ordinary or necessary business expense, but it can be in certain situations. However, the rules for deducting them are pretty specific, and the IRS pays close attention since people may be tempted to cheat here.

Generally speaking, a meal must involve the discussion of business matters with a business contact to qualify for the deduction. For example, that might include:

• Lunch with an existing client where you discuss ongoing issues
• Dinner with a prospective client during which you attempt to close a deal
• A meal with a vendor where you negotiate payment terms

If a meal is deductible, you have two options for calculating the size of the write-off. You can deduct 50% of the actual cost of the meal, as long as it’s not an extravagant amount, or you can use a flat allowance set by the General Services Administration.

Notably, in the 2021 and 2022 tax years, the IRS has temporarily lifted the 50% limit for meals that come from restaurants to help the industry recover from the effects of COVID-19.

9. Phone and internet bills

As a self-employed worker, you can take a tax deduction for whatever percentage of your phone and internet usage is for business purposes.

If you rent an office space with its own internet connection and pay for a second phone line just for your business communications, you can deduct the entire cost of both services.

However, if you have a home office or use your personal cell phone number for work, you can only deduct the business portion of the related expenses. Unfortunately, it can be particularly difficult to calculate that split for your phone and internet costs.

10. Qualified business income deduction

The qualified business income (QBI) deduction can significantly reduce your tax bill as a 1099 contractor. In simple terms, it lets you write off 20% of your business earnings, though that doesn’t include things like capital gains or interest on company investments.

To be eligible for the write-off, you must have pass-through income, which primarily excludes C-Corporations. In addition, there’s a maximum income restriction, and if you exceed it, the size of your deduction depends on the type of business you run.

As you can probably tell from that description, calculating the QBI deduction can be pretty laborious. There are a lot of nuanced rules to navigate, and it’s not a good idea to try and tackle them without the help of a tax expert.

For more details, you can read the IRS publication Instructions for IRS Form 8995.

11. Self-employment taxes

The self-employment tax deduction is one of the best ways to reduce independent contractor taxes because your eligibility doesn’t have anything to do with your line of work. As long as you’re self-employed, you can probably claim it to some degree.

The self-employment tax is a 15.3% tax comprised of two parts: a 12.4% Social Security tax and a 2.9% Medicare tax. It applies to 92.35% of your net earnings. Employees get to share that cost with their employers, with each party paying 7.65%.

However, self-employed taxpayers don’t have that luxury. The self-employment tax deduction lets you write off the employer portion for income tax purposes, easing the additional tax burden.

For example, say you report $50,000 of net earnings as a sole proprietor. You’d have to pay $7,065 in self-employment taxes. However, you could reduce your taxable income for state and federal income tax purposes by half that, which is $3,825.

Did you know that your personal credit score is also a factor of your business credit score calculation? That means improving the former could help improve the latter, too.

Less-than-perfect personal credit doesn’t have to be a scarlet letter you wear on your chest for the rest of your life. Personal credit scores can be repaired. You can start with the 5 strategies below.

#1. Monitor Your Credit Report Closely

According to the Fair Credit Reporting Act, your credit agency is required to show you your credit report at least once a year at no charge. Take full advantage of that right.

Why?

You may have credit dings you don’t know about or that don’t belong on your credit report. You have the right to challenge them and request they be removed. How do you do this? Start by going through your credit report each year -- and be thorough. Even a few inconsistencies can add up quickly and could be the difference between a red flag and a green light for funding.

#2. Target a 10% Balance

How much can you put on your credit card? If you're trying to improve your credit, experts advise keeping that balance at 10%. So if your card limit is $5,000, a balance of $500 or less would maximize your credit score. 

Why?

Credit cards account for 30% of your personal credit score. Without an active credit card, you’re missing a gigantic portion of your score. 

At 0−7% balance to limit ratio, the credit agencies will see a lack of recent revolving credit. This could make them think you don’t have experience with credit cards. To them, it would be like hiring someone with no employment history for a job.

Anything above 10% will chip away at that 30% of the overall credit score affected by credit cards:

• A 10−30% balance takes away up to 10%
• A 30–50% balance takes away 10−25%
• A 50−90% balance takes away 25–90%

Of note, credit card records update monthly, so you can swing your credit score substantially by paying maxed out credit cards down to 10% utilization in a month.

But…

If you're thinking about applying for a new card and maintaining a low balance, proceed with caution: you won't want to apply for a lot of new credit at the same time. The reason for this has to do with “credit inquiries” or "credit checks" (also called a "credit pull"), which is the term used when a lender, broker, partner, or vendor checks your credit score. 

A “hard inquiry” is what you want to avoid when trying to rebuild credit because each one negatively impacts your credit score. The less credit you apply for, the fewer hard inquiries your credit score will show. 

BTW, if you have store credit cards, consider the following: using a store credit card at least once every 6 months allows it stays active. If the issuer deactivates the card, a credit check may be needed to reactivate it, which could constitute a hard inquiry, too, although the impact to your credit score may not be as great. Also, hard inquiries drop off your credit report after two years.   

#3. Smartly Use the Credit You Have

If you have an unused credit account like a personal line of credit, you may use that to boost your credit score, too.

Why?

Your credit history is an average of all your open and active credit accounts. A good credit history with credit—any credit—can positively impact your score. If you have a line of credit that you've not used, consider paying expected expenses with it and then paying back the line of credit with the money you already put aside in your checking account to pay those bills.

Also...

Did you know that opening a new store account, like a Macy's or Kohl's card, to save 10% could drag down your score? If you have a lot of old credit cards and a couple new credit cards, consider closing the new cards to boost your length of credit history. Fifteen percent of your score is based off the average length of all your open and active accounts. When you introduce new accounts it adds 0-year accounts to the profile, which can also cause a score to drop.

# 4. Keep Debt Levels Low

#5. Piggyback Off Someone Else’s Good Credit

Have someone you know add you as an authorized user of their credit card. You’d have to ask the person to do this, and if they agree, they would add you, receive the credit card in your name linked to their account, and pass it off to you.

Why?

Because you can gain a ton of credit history. 

Credit history is important because it’s a huge contributor to your credit score. As an authorized user of someone else’s account, their good credit is factored into calculating your credit score. Think of it as an endorsement.

But…

It’s only a good endorsement if the person giving it has good credit, so choose the person wisely. Who should you consider: someone who keeps a low balance and pays their bills on time. Spouses and family members may be the most open to this idea.

Also…

Do everything right! Just as you will benefit from the person’s good habits, that person can take a credit hit if you abuse the authorization you’ve been given, so treat it with respect (remember, they're still on the line for all charges). And don’t get yourself authorized on too many accounts. Credit agencies will flag that as you artificially raising your score.

#6. Pay Bills on Time 

Paying your bills on time is by far the best thing you can do to rebuild less-than-stellar credit. 

Why?

It shows that you can handle debt and be trusted with someone else’s money.

But…

Credit agencies are notified when you have a bill outstanding for more than 30 days. They call it a delinquency, and it will stay on your credit report for 7 years, depressing your score the whole time.

For example: If you had a 30-day late payment reported in June 2022 and you cleared the account in full by July, it would stay in your report until June 2029.

The bad news is that you won’t be able to get back to perfect until then, even if you do everything right.

#7 Watch out for Risk Indicators

Credit card issuers like customers with consistent spending and paying behaviors. This is why you must be careful about risk indicators like skipping payments or paying less on your balance than you typically do. If you’re making large purchases, or spending on services like a divorce attorney, or a real estate selling agent, these could also be indications of upcoming financial trouble. Before deviating from your normal spending patterns, think about how they’ll look on your credit report.

Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

If you’re like any normal small business owner, you’re short on time and you’re probably thinking “What is bookkeeping and why do I need to do it?” 

Bookkeeping is a way for you to track and manage your business finances and is one of the many responsibilities that come with being a small business owner. You need to know what’s happening with your business cash flow and finances. It’s a major factor in your success. 

Here, we’ll cover some quality bookkeeping tips you can use to simplify your accounting process and make your life easier.

1. Keep Personal And Business Finances Separate

Keeping your personal and business finances separate is important for a number of reasons. As a small business owner, it’s essential for you to know what’s happening with your business finances. It’s one of the basic metrics for determining if your business is successful.

It’s much harder to know where you stand when you constantly have to decipher your transactions and guess whether it was a personal purchase or a business expense.

This also becomes a problem if you’re using business funds for personal expenses or are spending more cash than you have coming in. But you only see that clearly when there’s a separation between your business and personal funds. 

It doesn’t just apply to your business bank account. Your business should have its own separate business account and business credit card to handle financial transactions. This avoids commingling business and personal funds. 

Keeping things separate helps avoid violating any tax laws that apply to your business taxes. It also keeps you out of hot water by limiting your personal liability in legal situations involving your business. This is by far one of the most important small business bookkeeping tips.Now that you’ve separated your accounts, it’s time to track all of your expenses. Business lunches, printer ink, travel expenses—everything. There are a ton of small business tax deductions you can capitalize on, and every penny counts.

2. Keep Your Receipts

When you make a quick run to the store for business supplies, it’s second nature to ball up your receipt and move on with your day. But if you plan on including that supply run as a tax deduction, then you’ll need to hold on to your receipts. 

The IRS actually requires receipts for all business tax deductions. This doesn’t mean you have to keep a shoebox full of faded receipts though. 

Just snap a picture, verify the info, and categorize the expense. That makes it simple to see where the money is going and even integrates those expenses into your financial statements. Let’s just say your accountant is going to be thrilled with you.

3. Keep Detailed Records

The process of bookkeeping is difficult enough without having the appropriate records to reconcile the books. By keeping well-organized receipts, invoices, and other expenses, you’re making life easier on yourself. 

Your records don’t have to be complicated to be effective. If you’re fond of keeping paper records, keep a secured file cabinet with separate folders for bank statements, payroll, invoices, receivables, receipts, and other important financial information. 

You have the option to make your small business paper-free with accounting software that allows you to scan in your documentation or upload images to manage and organize your expenses in a few clicks. 

To get the most out of the expense side of your accounting software, you’ll want to look for features that allow the software to “read” the scanned information. 

Paired with AI, this helps you reduce the time it takes to enter data from your records and minimize errors. It doesn’t get much simpler than scanning or snapping a photo and reviewing for accuracy. 

Without the receipts to record what expenses your business paid throughout the year, you might have trouble claiming certain deductions at tax time. This might also result in extra time and costs associated with your accountant or bookkeeper.

4. Automate Everything That You Can

There are already enough tasks that take you away from your business. With automation, you can streamline your small business bookkeeping tasklist and get back to doing what your business needs. The right accounting software is a great first step in this direction.

With Lendio’s online accounting software, you get hours of time back by automating tasks like:

• Recurring invoices
• Tracking expenses through linked bank accounts
• Syncing invoices with bookkeeping
• Updating payment statuses

It saves you the manual entry of endless data into a spreadsheet. And there’s no more doing the sales tax and discount calculations by hand. The more bookkeeping tasks you automate, the more time you have for the other aspects of your small business.

If you’re ready to save time and automate your bookkeeping system, check out Lendio’s risk-free plans and pricing.  

5. Keep Track of Mileage or Car Expenses

Do you travel a lot for your business? Keeping track of car mileage and expenses used for business purposes could add up in tax deductions or reimbursements. It’s important to keep impeccable records to take advantage of the deduction for 58.5 cents per mile in 2022.

Each business trip must include the number of miles, the purpose, and the date. If you travel frequently, that can be difficult to manage without the help of technology. There are apps that allow you to track and log your business mileage by linking with your phone’s GPS. 

Remember that your business shouldn’t pay for your personal vehicle expenses. That’s still part of keeping your personal finances separate from your business.

6. Set Aside Money for Taxes

Each year, business owners get hit with tax obligations they weren’t prepared for. At a minimum, you should be saving at least 30% of your income in preparation for your annual or quarterly taxes. Not saving money for tax preparation can result in fines and penalties. 

Nobody wants that. 

The best thing you can do is automate a portion of your income to be deposited into a business savings account. This keeps you from accidentally spending the money you’ve been setting aside while also staying prepared for taxes year-round. 

It’s easy to forget the tax deadlines for businesses when you have so much else to do. It might be helpful to set an automatic reminder for when the deadline rolls around each year.

7. Set Aside Time to Review The Books

Even if you’re not the one doing the bookkeeping and payroll, it’s important for you to block out time to review the accounting records and financial statements with your professional bookkeeper. It keeps you up to speed with how the business is performing and growing. 

And if you’re doing it yourself, it’s especially important to stay on top of your small business accounting. Small business owners often find it challenging to manage cash flow for their company. 

Reviewing some of the financial statements, accounting reports, and accounts receivable data helps you uncover where the money is being held up. It’s best to do this weekly or monthly depending on what works for your business.

Bookkeeping for a small business is time-consuming and complex, especially if that’s not your strong suit. 

If you don’t have the money to hire an accountant or bookkeeper yet, online accounting software might be the best option for you to get your accounting in order and save time on bookkeeping. 

Once you have that down, you can make the business decisions needed to continue making profits, serving your community, and delivering on your brand promise.

8. Keep Track of Invoices

Keeping track of invoices is essential to understanding how cash flows into your business. It allows you to analyze trends and establish payment terms that work for you. 

Lendio’s software makes it easy for you to create custom invoices that look professional and provides a clear view of what’s paid, unpaid, and past due. So you know which clients are current and which ones need a reminder email. 

In many cases, you can also integrate your invoices with bookkeeping software to produce financial records and statements that make managing your bookkeeping process smoother. If you’re still accepting cash transactions, there’s a way to track that with Lendio’s software too. 

If you’ve been delivering paper invoices, Lendio’s software gives you the chance to go paper-free and optimize your cash flow with a variety of payment options. So you don’t have to accept cash payments unless you want to.

9. Consider Hiring a Bookkeeper

Hiring a good bookkeeping or accounting service is an investment that saves you time and outsources a painstaking task to someone who specializes in it. Most bookkeeping services are relatively affordable and handle everything from accounting to payroll.

Right around tax time, you’ll be grateful you decided to hire a bookkeeping service. They’ll save you plenty of money and time spent shuffling through receipts. 

Overall, having a solid bookkeeping system is important to keeping your business profitable, efficient, and running smoothly. By integrating the small business bookkeeping tips we’ve covered, you don’t have to be stressed out by the tediousness of tracking finances. 

Instead, you can use bookkeeping software, mileage tracker apps, and invoicing software like Lendio’s software to help you stay on top of everything. If all else fails, you could always hire an accountant to help you keep it all together. 

Disclaimer: This article is not intended as legal or financial advice. Consult your financial and legal professionals for professional advice tailored to your personal circumstances.

10. Adopt Cloud Bookkeeping Software

Ditch the spreadsheets and ledgers and get cloud bookkeeping software. Tech can do practically all of the tedious bookkeeping for you. Okay, not everything, but a bookkeeping platform can automate your invoicing, expense tracking, income categorization, and financial reports. That adds up to a lot of saved time.

Software doesn’t replace the need for professional accounting guidance, but it does simplify the minutia of running a business. It’ll help you get your finances in order and keep them in order. Plus, by using a cloud-based solution, you’ll always have real-time financial data on your business’s performance—no need to wait until end-of-week or end-of-month reconciliations.

Make sure your bookkeeping tool also has high-quality document management features. The right tool will streamline the process of managing financial documents like invoices, daily expenses, payables, receivables, and receipts. The software should also allow you to easily share your files with your accountant—no copy/paste or screenshots necessary. Less time bookkeeping means more time focusing on growing your business.

11. Create Cash Flow Forecasts

This process is where bookkeeping turns from entries to insights. Yes, bookkeeping is a necessary evil for legal purposes, taxes, and audits, but it also informs and drives your business strategy.

With detailed financial records, you’ll be better able to forecast your cash flow. With accurate cash flow forecasts, you’ll always be prepared to make the best financial decisions for your business. These insights will help you avoid dangerous amounts of debt and leverage your existing capital to its utmost potential. Coming full circle—these informed business decisions will improve your financial health and help you qualify for financing.

12. Pay Your Taxes

Remember when we talked about separating your personal and business expenses? Yeah, tax time is when you really reap the rewards of that upfront decision.

Income tax, payroll tax, unemployment tax, excise tax, sales tax, property tax…that’s a lot of taxes. Don’t let the fees creep up on you come tax season.

If you’ve been consistent and organized with your bookkeeping, tax time will be a breeze. If you’re using a solution like Sunrise, you can simply invite your accountant to access your transactions and financial reports —they’ll take care of the rest. Easy peasy.

13. Regularly Review Your Financial Records

Financial reports won’t do you much good if you never use them. Make it a habit to frequently analyze your statements. Keyword: analyze. Don’t just glance at them or give them a quick read—dive into the details. These are the same reports lenders will be looking at to decide if you qualify for financing. You should be looking for the same red and green flags they’re trying to discover.

To some degree, you should check your financial records every day. At the end of each day, make sure the money in the bank matches the receipts. By monitoring your transactions daily, you’ll be able to catch errors, fraud, and unexpected fees before it’s too late.

While it’s important to track day-to-day transactions, you also need to review the big picture with month-to-month statements. The profit and loss statement, balance sheet, and cash flow statement are your most important financial reports. These telling financial documents will give you quick and deep insights into your business’s health. They’re also the first thing lenders and investors will look at when examining your business’s potential.

Make sure to block off time in advance to take care of your bookkeeping tasks. You’re likely extremely busy, and many things might seem immediately more important than tracking your day-to-day finances. Don’t slip into the procrastination trap—set aside time at the end of each day and month to reconcile your books.

The Bottom Line

Overall, having a solid bookkeeping system is important to keeping your business profitable, efficient, and running smoothly. By integrating the small business bookkeeping tips we’ve covered, you don’t have to be stressed out by the tediousness of tracking finances. 

Instead, you can use bookkeeping software, mileage tracker apps, and invoicing software like Lendio’s software to help you stay on top of everything. If all else fails, you could always hire an accountant to help you keep it all together. 

Disclaimer: This article is not intended as legal or financial advice. Consult your financial and legal professionals for professional advice tailored to your personal circumstances.

If you don’t know where you’re going, how will you get there? When you're running a small business, you need a map that keeps you on the right road to reach your goals. 

Otherwise, you're just working hard every day and hoping things will turn out for the best. The bad news is that they rarely do.

That's where financial forecasting for small businesses steps in. There's even free accounting software for small business to make the forecasting process easier for you.

What is financial forecasting? 

Forecasting uses the historical performance data of your business to predict its performance in the future. 

Financial forecasts can give you a picture of how your business will perform in the future in best-case, worst-case, and normal scenarios. These forecasts form the foundation for preparing budgets and sales schedules as part of a business plan.

A financial plan is used to construct the three basic financial statements for a business: an income statement, balance sheet, and cash flow statement. 

Sales forecast: Create a sales projection on either a monthly or quarterly basis. Also include sales projections of each product or service and the specific cost of goods sold for each one. 

You need to know which products give you the highest profit margins so you can focus your sales budgeting and marketing efforts on those items. 

Expense budgeting with fixed and variable costs: Expense budgeting includes fixed expenses such as rent and insurance premiums and the variable cost of labor and materials. 

These expenses may change as a company increases revenue, expands to new locations, or hires additional employees. 

Income statement: Forecasts for income statements can change depending on the sales product mix, costs of production, marketing costs, and different pricing strategies to meet competition.

Preparing different income statements for various conditions can give you an idea of the profitability of your business for multiple strategies.

Balance sheet: Assets and liabilities present the financial health of a small business with different strategies. For example, some strategies may require that the company carry higher inventory and support increased amounts of accounts receivable. 

Depending on the company's profit margin, the company may need to obtain short-term financing to support the buildup in current assets. Financial forecasts will show you what your company will look like in these circumstances so you can plan in advance if you need to obtain financing.

Cash flow statement forecasting: How will your decisions affect your cash flow statement and the amount of cash in your bank accounts?

A company that is experiencing rapid increases in revenues with low net profit margins may not generate enough internal cash inflows to have enough working capital to support the resulting increase in assets. 

Financial forecasts are critical to planning your cash flow forecast to make sure there’s always enough cash to pay expenses, regardless of the circumstances.

Break-even analysis: The first performance benchmark is to calculate how much sales volume is needed to cover fixed costs. 

This is the absolute minimum that must be met, otherwise, the company would be operating at a loss. Financial forecasting will show you how your break-even revenue levels will change under various strategies.

How to write a financial forecast for your business 

Step 1 - Review your historical financial performance

Are you satisfied with your sales levels? Do you need to revise your marketing strategy or increase the intensity of your sales efforts?

Are you happy with your gross profit margins? Do you need to analyze each product’s cost of production to find ways to improve efficiency or lower costs? 

It’s important to go through each one of your company's financial ratios (liquidity, asset efficiency, profit margins, and debt leverage) and identify those that need improvement. 

If you see, for example, that your current ratio is consistently less than two to one, you could use the forecast to predict the results of improving receivables collection efforts or lowering inventory levels. 

Step 2 - Create a baseline projection

For example, if sales have been increasing at a 10% rate for the past several years, you could reasonably assume that sales will go up another 10% next year. If total expenses have been rising at a 9% rate, you could safely project the same increase for the coming year.

By just making straight-line projections on historical data, you can create a baseline financial projection you can use to test the results of various strategies. 

As an illustration, suppose you want to expand your product line. You could start by modifying the baseline projection to see the effects of increased new product sales and the related costs of production on profits.

Step 3 - Take into account factors that might change the baseline

For quantitative projections, you could use something as simple as taking historical data and making straight-line forecasts into the future. 

Step 4 - Forecast different scenarios

Consider different scenarios. What happens if the economy turns down or if a new competitor appears? How will these events affect your future sales, profits, and cash flow? What actions will you need to take?

Considering different scenarios will help you prepare your business to deal with these challenges. It’s much better if you’re prepared beforehand rather than being caught off-guard and having to scramble. 

Uses of financial forecasting

You can use financial forecasting to:

Plan for the future

Suppose you want to pay down your debts. A forecast can show how much cash will be generated, where it will come from, and how quickly you can liquidate your loans. 

If the debt repayment plan is too slow, you can adjust the forecast and make the changes needed in your operations to increase the cash flow. You may need to change your product mix or find ways to cut expenses to meet the debt repayment schedule you want. 

As your company grows, you may need to add additional employees. You may find that you'll need more salespeople, warehouse personnel, or more administrative support. A forecast will identify when you’ll need the new employees and how much cost they’ll add to your payroll.

If growth requires additional capital equipment, the forecast will identify how much equipment is needed and when it will have to be in place. At the same time, you can begin to solicit price quotes and develop a plan to pay for the purchases.

Establish realistic goals

You may find that your company isn't generating enough internal cash flow to support the rapid increase in assets that come with high growth rates. 

If your business is already leveraged with debt, you might not be able to get additional financing to support the growth. In that case, you'll need to scale back your dreams to a more realistic goal. 

Show to potential investors and lenders 

Lenders want to feel comfortable that you'll be able to repay a long-term loan or manage a business line of credit. You can establish credibility as a small business owner by presenting a well-thought-out cash flow projection that shows them how you’ll be able to repay a loan. 

In addition, you could present different forecasts that show how you'll still be able to repay the loan even if things don’t go as planned.

Lenders want to believe that you're in charge of your business and know how to handle different types of business financing.

Investors want to know that they're going to get a good return on their money to justify taking the risk of making an equity investment in your company. A realistic forecast will show that the company is capable of generating a good return on equity and that the return is likely. 

What tools can help you forecast your financials?

You can even try out different “what-if” scenarios. Financial planning won’t be time-consuming or tedious with these tools.

These software apps will typically come with a set of key performance indicators (KPIs) -- such as monthly sales, gross profit margins, EBITDA, liquidity ratios, and inventory turnover -- that monitor the performance of your business. 

KPIs are like looking at the instruments on the dashboard of your car except, in this case, the indicators are measuring business performance.

Conclusion

Monitor the actual results and look for deviations from the plan to make corrections. This is like driving your car down the road and it drifts off the pavement. You then make a correction to get back on the road. It’s the same idea with your business. 

Some KPIs you can monitor weekly, and others you look at on a monthly basis. 

Resources

1. Entrepreneur: “Preparing for the Future With Better Financial Planning for Small Business”
2. SCORE: “3 Basic Financial Statements You Need to Keep Track of Your Money”
3. Inc.: “Financial Ratios”
4. Entrepreneur: “3 Reasons to Stop Creating Financial Reports Manually”
5. Forbes: “The Value of Key Performance Indicators”

Women own 42% of all U.S. businesses, have 9.4 million employees, and $1.9 trillion in revenue, according to findings by the National Women’s Business Council (NWB). But even though they’re now slightly more likely than men to start businesses, women continue to face unique challenges in access to financing. According to the Federal Reserve Banks Small Business Credit Survey, women-owned businesses apply for financing at similar rates to businesses owned by men but are less likely to receive the full amount they sought (43% vs. 48% of men).

About business loans and financing for women-owned businesses

The good news is that business loans for women aren’t out of reach. There are several loans women can use to run and grow their businesses, whether they need a source of short-term working capital or funding for a large-scale investment.

Microloans for business owners

Microloans are what they sound like: small loans.

These loans are typically much smaller compared to the other loan options discussed so far. They can be a good fit for owners who:

• Haven’t been in business very long
• Have smaller annual revenues
• May not be able to qualify for other business loans, based on their credit
• Don’t need as much financing for their business

A microloan is worth considering for home-based business owners with smaller operating costs or mobile business owners, like food truck operators or DJs.

Microloan programs

Both for-profit and nonprofit organizations offer microloans to women, as well as minorities, and other business owners.

SBA microloan program

The SBA’s microloan program offers up to $50,000 in funding for qualifying businesses. According to the SBA, the average microloan is $13,000. The maximum loan repayment term is six years, and interest rates range from 8% to 13%.

You could use it to:

• Meet your working capital needs to cover initial expenses
• Buy inventory or supplies
• Outfit your business premises with furniture or fixtures
• Buy necessary machinery or equipment

The only thing you can’t use a SBA microloan for is refinancing existing debt or purchasing real estate.

Securing an SBA microloan

Obtaining an SBA microloan follows a specific process. Here's a summary of the steps involved:

1. Identify an intermediary lender - The SBA doesn’t provide microloans directly. Instead, they partner with intermediary lenders, which are usually nonprofit organizations. You can find a list of these organizations on the SBA’s website.
2. Prepare your business plan - Before you apply for a microloan, you’ll need to prepare a comprehensive business plan. This plan should include details about your business, your market analysis, and your organization. It should also include your management structure, product line or service details, marketing and sales strategy, and financial projections.
3. Gather necessary documents - Be ready with your legal documents, business and personal bank statements, balance sheets, income tax returns, and credit report.
4. Submit your application - Apply directly to the intermediary lender. Each lender has its own application process and requirements, so it’s crucial to review these details on their website or contact them directly.

Accion

Accion is a nonprofit that offers up to $50,000 in microloan funding to brand-new and established women-owned businesses. The amount you can borrow depends on which state your business is located in.

Kiva

Kiva is a nonprofit that offers crowdfunded microloans of up to $10,000 with no interest. Repayment terms stretch up to 36 months. The program operates on a peer-to-peer lending model, whereby individuals invest as little as $25 in a borrower's business. Kiva U.S. enables entrepreneurs to leverage their community for the first 25% of the loan during a private fundraising period. After reaching this threshold, their campaign is opened to Kiva's wide network of lenders worldwide. These loans—which have a repayment term of up to 36 months—can be used for a variety of business-related expenses, such as buying inventory, hiring staff, or purchasing equipment.

Grameen America

Grameen America is a nonprofit microfinance organization that provides small loans to women who live below the poverty line in the U.S. They offer microloans ranging from $2,000 to $15,000. Established by Nobel Peace Prize laureate Muhammad Yunus, the organization follows a peer group model. This means that when a woman receives a loan, she must form a group with four other women who will also receive loans. The group meets weekly for financial training and to make loan repayments.

LiftFund

LiftFund is a nonprofit organization that provides extensive small business support in the form of microloans, larger loans, and business education. Their microloan program offers up to $50,000 for startups and up to $1 million for established businesses. The interest rates are competitive, and LiftFund prides itself on providing loans to those who have limited access to capital from traditional sources.

Microloan eligibility requirements

As with any other loan, take your time to review your financial position, the interest rate, repayment terms, and the minimum requirements to qualify.

To qualify for a microloan, business owners typically need to meet certain criteria. These might vary depending on the lending organization, but here are some common requirements:

• Good credit score - Lenders often look at your personal credit score as an indicator of your financial responsibility. A good credit score can increase your chances of securing a loan.
• Business plan - Most lenders require a comprehensive business plan that outlines your business operations, target market, financial projections, and marketing strategy.
• Proof of income - You may need to provide proof of a stable income, demonstrating your ability to repay the loan.
• Collateral - Some lenders may ask for collateral to secure the loan.
• Training or counseling - Certain programs require you to participate in business training and planning sessions before granting the loan.
• Legal documentation - Be ready to provide legal documents relating to your business, such as your business license, incorporation documents, and any lease agreements or contracts you have.
• Business age - Some microloan programs cater to newer businesses, while others might require your business to have been operational for a certain period of time.
• Residency - Many programs require borrowers to live in a specific area or region to qualify for a loan.

Applying for a microloan

Applying for a microloan involves a series of steps that are generally similar across different lenders, with some minor variations.

1. Identify your needs - The first step is to identify your funding needs and how a microloan can help fulfill them. Consider the amount that you'll need, how you plan to use the loan, and how you will repay it.
2. Choose a lender - Next, research various microloan lenders to find one that suits your needs. Consider factors like the loan amount, interest rates, repayment terms, and the lender's reputation.
3. Prepare a business plan - Most lenders will require a business plan that outlines your business model, forecasts your revenues, and demonstrates how the loan will be used to grow your business.
4. Compile necessary documentation - Gather all necessary documentation. This typically includes financial statements, tax returns, and personal identification documents. It's also common for lenders to ask for a credit report.
5. Complete the application - Complete the lender's application form. This could be online or in person, depending on the lender. Be sure to provide detailed and accurate information.
6. Wait for approval - After submitting your application, there may be a waiting period while the lender assesses your application. During this time, they may ask for more information or clarification on your application.

Remember, every lender may have slightly different procedures. It's always best to check with your chosen lender for specific instructions on their microloan application process.