What kinds of accounts do I need in my small business? We go beyond the usual “checking and savings” to determine what serves you well now and in the future.
Resources:
Meg Donnelly owner of NoVA Weekend Warriors in Herndon, VA, https://novaweekendwarriors.com
Self Employment tax calculator https://www.nerdwallet.com/article/taxes/self-employment-tax (calculates federal tax only)
The Basic Facts About Women in Poverty https://www.americanprogress.org/article/basic-facts-women-poverty/
0:00:13.0 Allissa Haines: Welcome to business or Pressure Taking the pain out of Massage Business with me, Allissa Haines. This is your no nonsense guide to managing your business money. It is our mission to make sure that every massage therapist and bodyworker has the tools to make a living wage in a thriving business. Let's jump in. We are continuing to talk about all things business money. And today we're covering what kinds of financial accounts you might need and how to use them. First, I'm going to note, because it's pretty much obligatory whenever you talk about small business money. It would be good to have separate bank accounts for your business that are not combined with your personal accounts. Is this required? No. There's no law that says a sole proprietorship needs to have separate accounts to manage the business money. But I can tell you it's a really good idea. It becomes easier to organize your business money to track your cash flow, bookkeeping becomes easier and it gives you better boundaries with your money. And it's one of the factors that determines if you've got a hobby or a business. So if you want a real massage business, I cannot stress enough that that business has a separate set of accounts from your personal accounts.
0:01:33.7 AH: Your business structure and financial institution may determine the type of account you can get. And what I mean by this is if you are a sole proprietor, your business is probably run based on your Social Security number. So your bank is going to give you a personal account and they're going to call it a dba, a Doing business as account, and it's going to have your Social Security number attached to it. If you formed an LLC, they may give you a business account with the LLC's tax ID number. It doesn't matter. You can usually find no fee personal. And business accounts at a local bank.
0:02:09.4 AH: Or credit union if you look hard enough. I'm a fan of credit unions. You do what works best for you. But once you find a financial institution, bank or credit union, here are the accounts that you want to start with. A checking account. This is where you put your income. Every penny that you make providing massage or selling retail products goes into this account. And this is the account that you pay expenses from your rent, your utilities, any business expenses that you have. And this is also how you pay yourself. You move money from your business checking into your personal accounts. So this one checking account is really the hub. And next we've got savings accounts. Now, if you are good with bookkeeping and organizing money, you might only need one savings account and it can hold money for all of these different uses. If you're not great with bookkeeping and you're not great with organizing your money, it might be worth it to have a few different savings accounts, each for a different purpose. And the first one that would serve most business owners well is what I have come to call the out of work savings. And in a perfect world, we would all have three months at least of operating expenses and three months of your owner's draw sitting in the savings, waiting for when you need it.
0:03:34.9 AH: And you may be out of work for any of a variety of reasons. You could be out of work because a really big storm hit and you didn't have power at your office for a week. You could be out of work because you got sick or someone you care for is ill. You could be out of work because you have a planned vacation. But the goal of this savings account is to cover you, to cover your bills, and ideally, your owner's draw. If you are out of work, the next savings account you want to have is a tax savings account. Now, I'm going to caveat this by saying, first of all, none of this is tax advice. I'm going to give you some resources. I am not a tax preparer. I am not a financial advisor. This is not tax advice. This is education on why you might need a separate savings account to hold money that eventually you will pay in taxes. And the second caveat here is that you could choose to have a tax savings account on the other side of your money in within your personal accounts and not within your business.
0:04:34.9 AH: But after working with sole proprietors for as long as I have, I found that most people like to keep their tax savings in their business savings account because once it gets mingled and put into your personal accounts, there is a fear that you will spend it on other things and then not have money to pay your taxes. So I'm suggesting that within all of your business accounts, you may want a savings account dedicated to holding on to taxes that you're going to pay the government. How you fund this account is up to you. You could, on a regular basis, weekly or monthly, total up how much money you made giving massage, total up how much your expenses were and then move a percentage of what's left into that tax savings account. Or you could pick a flat amount and move that every week or every month or whatever your schedule is into that tax savings account with the goal that at the end of every quarter you will have enough to pay your quarterly estimated taxes. If you have no idea how much you should be paying for your quarterly estimated taxes. This is a good time to consult a tax preparer. There are also some IRS forms. You can use some worksheets to calculate what your quarterly estimated taxes might be. They are a little tricky and in our show notes I'm going to put a link to a very basic calculator from the good people of NerdWallet that is going to help calculate your federal taxes only.
0:06:02.1 AH: The best and most accurate way to figure out how much you should be saving for quarterly estimated taxes is to talk to a tax preparer. They will use last year's numbers and any thoughts you might have if you're going to make more or less money in this current year to help you figure out how much you should pay for quarterly estimated taxes. So those are the primary two savings accounts that I think everybody wants to have. An out of work savings and a tax savings. Some small businesses also choose to have a separate savings account to hold gift certificate funds. Which means when someone buys a gift certificate from you, you put all or a portion of that money into this special gift certificate savings and then you only draw from it when that gift certificate is redeemed. Some states actually require this and some don't. So be sure to check on the rules for selling gift certificates in your state and follow those rules accordingly. And that might mean having a separate savings account or you just might want one. And then we come to Credit cards. Do you need a credit card for your business? No, you don't need one ever. There are reasons you may want one. Maybe if you travel a lot or if you do a lot of online purchasing for your business.
0:07:21.5 AH: Maybe a credit card makes sense because of the increased fraud protection. If you are really good about paying that credit card off and you never carry a balance, sure, a credit card could be a useful tool for you and your business. If you are not really good at that, I would strongly suggest you not have a credit card for your business. Because the only thing worse than having. Personal debt is having personal and business debt. If you are paying off a balance on a credit card from your startup costs or from financial decisions you made in the past, sure, pay it off, but don't use it for new expenditures because then you're just paying more interest. And finally, the last type of account. I want to talk about is one. That doesn't usually get covered in these. Conversations about what kind of bank accounts do I need?
0:08:12.3 AH: And this is a retirement account. If you are at the point where your business is making any kind of profit. If you are at the point where where you are paying yourself weekly or monthly or even irregularly if you haven't gotten into paying yourself regularly yet. If your business is making a profit, you owe it to yourself to open some kind of retirement account and be contributing to it regularly. This could be a traditional or Roth 401k, a simple IRA, a SEP. You should talk to a tax preparer or financial advisor to figure out what is the best type of retirement account for you. Even if right now you can only put in $10 a week. Every small business owner should have some kind of self employed retirement account. And if that seems really far fetched to you, if you rolled your eyes or you sighed or you were like, there's no way I can make that happen right now. I would like to emphasize to you that 13% of women 75 years and older live in poverty and that's compared to 8% of men the same age. Women are far more likely to live in poverty through their entire lives and then more so as they age.
0:09:29.0 AH: Most of us in massage therapy are women. Most of us are also caregivers in our personal life. Oftentimes we are not the primary earners in our household and oftentimes our own retirement needs become neglected. We are in a time where taking care of yourself and taking care of yourself financially is an act of rebellion. It is also an act of bravery to prioritize yourself and your own financial needs. I am not suggesting that you don't pay your personal rent or utilities or food because you want to contribute a whole bunch to your retirement. But I can tell you if you open some kind of retirement account within your business and you contribute $10 a week with an automatic withdrawal, you probably won't notice the loss of money in your business and you will be saving for future you. And that is really important. And that's the wrap up on the types of financial accounts you might want in your small business. We're going to jump into our next chat with colleague. I am here with Meg Donnelly, owner of Nova Weekend warriors in Herndon, Virginia. I know I was going to stumble on that. Hi Meg.
0:10:47.5 Meg Donnelly: Hi. How are you?
0:10:49.1 AH: I'm good. Meg is our colleague. Meg is my friend. And Meg always has really smart things to say and usually they're pretty funny. So no pressure. But Meg, what do you do that keeps clients coming back?
0:11:04.5 MD: Well, I don't know how funny I will be today, but I can tell you that one of the things that I think really keeps my clients coming back is making time at the beginning and the end of an appointment for a Consultation and a recap and then making sure that I'm scheduling enough time between clients to be able to do that. So I know I have the liberty to do that because I have my own massage practice. And certainly some people that if you work for someone else, you may kind of have to talk to somebody about that. But what I really find is sometimes the people that come and see me, no one else on their health and wellness team or really in their life has taken the time to hear them out and to hear their story about their condition, their pain, their stress, their athletic performance, how it's affecting them, all of those things, really. No one else has really given them the time. To clarify what that feels like for them and in their bodies.
0:12:15.8 AH: That is huge. Because people with any kind of health or medical issue, they go into multiple offices trying to find an answer, and they fill out forms and they answer questions. But you're 100% right. They're never really given the chance to just speak and elaborate. It is rare to find, you know, an orthopedist who will do that and little less rare to find, like, a physical therapist who'll do that. But, yeah, a lot of times it's the first time someone can, like, really unload. So brilliant. So what happens in these. In these chats before and after, Are you also doing, like, range of motion assessment assessments? Are you doing, like, pain scale stuff? Are you doing anything objective in there to kind of emphasize the results you do or don't get and what's in the next treatment?
0:13:04.6 MD: Yeah, well, I think the first thing is when you talked about a lot of times they will go to other health and wellness professionals to get an answer. And one of the things that I really feel like I do and talk through my clients is that I'm probably not going to have the answer and that what we're going to do is work together to find out what your goals are, what you're looking to achieve, and then what is helping already, what is hindering that, what we can do. And, you know, a lot of times I'll talk about, like, dialing down the pain or dialing down the stress and anxiety. So I think coming to that from an approach of I want to hear from them what's going on, what's working now and what isn't working. So we can kind of work together to see what strategies are going to be best for them, and then we can kind of plan. Because if someone has a great set of tools outside of the massage studio that are working well from them, then that's going to help us decide what their plan of care is and how often they're going to come in or how often they're not going to come in.
0:14:25.8 MD: And so I think that's really where it all starts, is focusing a little bit more on those subjective pieces rather than the objective. And yes, we do kind of go through a more traditional assessment based on what's going on for them. So if someone is feeling, you know, has a feeling of tightness in their shoulder, yeah, we may do some range of motion, but we also always want to look at that from a positive perspective in what they can currently do. So we can build off of that versus I hate words like dysfunction because let's focus on what we can do and then improve on that so that kind of function can get wider and broader and bigger, if that makes sense.
0:15:16.3 AH: I've been doing a lot more work with older middle aged people like myself. And as I'm aging and feeling weird here and there, doing things in my life, I have found that when a client is like, okay, my shoulder hurts, I'm like, is there anything that, that makes it hurt? Like, are there things you're doing in your daily life when you notice that your shoulder feels sore or tight? And when you ask that question a few different ways you get like, oh yeah, when I'm reaching up into the top cupboard, when I'm reaching down into the low cupboard, when I'm picking up my dog to go up the stairs, when I'm doing this or that, and finding the really practical aspects of what is this shoulder thing? What is it doing in your life? Where is it stopping you from doing the things you want to do? And they're subtle. Like a lot of times it's subtle has, we don't catch shoulder issues until it's four months in and it's frozen shoulder. And I think if we're asking the right questions earlier, you say dialing down the pain. I usually say take the edge off, like, whatever works. It's always done in like little bits and pieces and never with one big thing.
0:16:22.6 MD: Yeah. And I think like, you know, there I, I struggle a little bit because in health and wellness in general, like there's always that fix it mentality and that person that's, I'm the one that can fix you, but only if you come to me three times a week for eight weeks and here's three exercises that you need to do three times a day and if you don't do it, then it's your fault. But if you get "fixed" then it's I'm the one that did it. And that just like makes me want to cringe. So I loved what you talked about. This is an often one is, yeah, the pain is when I reach up into the cupboard. And so now not only are we going to work on your mobility for your shoulder, but let's work on getting out a stool and making sure that you can get up onto the stool while you're improving to get and reach those things. Because I'm a mobility coach as well, so I get to kind of play in both of those areas based on what the client's goals are. So, yeah, I think it's just, you know, without those conversations it would be like, oh, it's frozen shoulder. This is the protocol for frozen shoulder. This is what we do. And then they're in the same loop they've been in with everybody else.
0:17:38.0 AH: I'm going to point everyone to Meg's website, novaweekendwarriors.com. I'm going to put the link in the show notes to a guide by your side Approach empowering clients in the massage therapy studio. Meg has a really good blog. You should totally look at some of the other pieces, especially the article about how to do a massage therapy photoshoot in your office. Anything else you want to tell us about today, Meg?
0:18:02.0 MD: No. You know me, brevity is not my strong suit. So I appreciate you taking the time today.
0:18:08.3 AH: Thank you for taking the time and joining us, Meg. Have a great day. If you have a question about running your business or an idea for an episode, please reach out via email businessorpressure@bmp.com you can also find me building websites. And providing budget coaching and business coaching. For massage therapists @deepbreathdigital.com and be sure you're subscribed to ABMP's podcast so you don't miss a beat. I'll see you right back here for the next episode. I can't wait.