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Complete Guide: Setting Up Your Business Finances for the First Time

This article is a guest post from Gusto, the people platform for payroll, benefits, and more. If you'd like to learn more about how Gusto and Salesforce work together, here's a great place to start.

Setting up your business finances is a crucial part of setting your business up for success—but if you don’t know where to start, the process can feel confusing, frustrating, and downright overwhelming.

But it doesn’t have to be. Let’s break down all the steps you’ll need to take as a new business owner when setting up your business finances for the first time:

How to create your startup budget

Before you dive too deep into setting up your business finances, you need to know what kind of finances you need on hand to keep your business moving forward.

Or, in other words, you need to create a startup budget.

Think of your startup budget as a financial roadmap; it lays out where you are, where you want your business to go, and, from a financial perspective, how to get there.

Set your total budget.

How much are you willing to spend to get your business up and running?

List your startup expenses. Make a list of all the different expenses you’ll have in starting your business—and then categorize each of those expenses as essential (costs you absolutely need to incur in order to get your business off the ground), non-essential (costs that will make starting or running your business easier, but aren’t totally necessary), and later (costs you’ll need to incur eventually in order to build a successful business—but that can wait at least six months).

Estimate your losses.

Generally, new businesses can take some time before they start driving revenue—but during that period, you still have to cover your expenses. Estimate how long it will take before you start bringing in revenue, calculate your monthly overhead costs, and figure out how that impacts your budget.

Tighten and pad your budget.

Once you’ve figured out your expenses and losses—and how those numbers compare to your total budget—look for areas where you can cut back and save money (for example, getting rid of a few non-essential expenses). Then, if you can, pad your budget with some extra funds—that way, if you find yourself having to deal with an unexpected expense (which is super common when you’re starting a business), you have some wiggle room to work with.

Looking for more details on creating a startup budget? Make sure to check out Gusto’s step-by-step guide on how to create a startup budget for your new business, complete with a budget template to help you get started.

How to set up your business bank accounts

As a business owner, it’s super important to keep your business finances separate from your personal finances—and that means getting set up with a business bank account.

Head to your local bank or credit union and open a business checking account. It doesn’t matter if you just started your business and don’t have any revenue; the earlier on in the process you open your business bank account, the easier it is to keep your business finances separate from your personal finances.

You should only use your business checking account for specific business activities, including:
Depositing business income
Processing business expenses
Making payments to any other business accounts (including a business loan or business credit card)
Paying yourself

Once you have your business checking account set up, you should also plan to open up two additional accounts: a general savings account (which allows you to save for large business purchases) and a tax savings account (which allows you to set money aside for taxes). While you can dip into your general savings account at your own discretion (it’s your savings, after all!), when it comes to your tax savings account, make sure to leave that money alone until tax day; the last thing you want is to find yourself short on funds when your taxes are due (there are few situations more challenging, time-consuming, and expensive for business owners than tax issues).

The last account you’ll want to tackle—if you decide to tackle it at all—is a business credit card. Business credit cards can be helpful for certain businesses—but they can also be detrimental to others, especially if they get you into debt you can’t repay. Before you decide to open a business credit card, make sure to really examine your relationship with credit, whether you can responsibly manage a business credit card, and whether it’s even necessary to start, run, and grow your business.

For more information on how to get banking set up for your small business, check out this guide on how to set up your business bank accounts *(and keep your business and personal finances separate in the process!) from Gusto.

Bookkeeping basics

It’s extremely important for all businesses to keep accurate and thorough financial records. You need to track every dollar that comes in or out of your business—and where every dollar came from or went.

That’s where bookkeeping comes in. Bookkeeping is the process of organizing, managing, and recording all the financial transactions in your business, including sales, deposits, purchases, bill payments, tax payments, and owner’s distributions. For each transaction, you’ll need to track:

The date of the transaction
The amount
The payer or payee
The income or expense category

There are plenty of different ways to manage your books. During the early stages of their business, many business owners keep things simple and track their income and expenses on a spreadsheet—then, as their business grows (and there are more transactions to keep track of), they upgrade to a bookkeeping software that syncs with their business bank account and automatically tracks and categorizes every transaction.

Accurate bookkeeping not only helps you get a clearer picture of your income and expenses (which can help you make better financial decisions and more accurate budgets), but having accurate financial records is also a must when it comes time to file your taxes.

Want a more in-depth look at how to get started with bookkeeping? Check out Gusto’s guide on the bookkeeping basics *you need to know to start your business.

Finding a financial advisor

There are a lot of financial decisions to make when you’re starting a business—and sometimes, you’ll want the support of a financial professional in making those decisions.

When it comes to choosing a financial pro to support your business, you have options. Depending on your needs, you might hire a Certified Public Accountant (CPA); a tax preparer; a bookkeeper; a financial planner; or any combination of these pros to help you better manage your business finances. Determine what your needs are, research financial professionals that might be able to fulfill those needs, and interview pros until you find the pro (or pros) that fit the bill.

For a more in-depth look at the different types of financial professionals, how they can support your business, and how to find the right pros for you, check out Gusto’s guide to financial pros.

How to make an ongoing operating budget

Just like your startup budget helped you get a clear idea of what it would cost to get your business started, an ongoing operating budget will help you get clear on what it’s going to take to keep your business moving forward.

Your operating budget should include:

Sales: What are your sales projections?

Costs: What costs will you incur related to selling your products and/or services?

Operating expenses: What are the fixed and variable expenses you incur in running your business?

Once you’ve drafted your operating budget, you can look for opportunities to cut costs or expenses and save capital (for example, you might cut back on variable expenses or explore using a more affordable manufacturer to create your products). You’ll want to pad your operating budget to account for any unexpected operating expenses (just like you did with your startup budget).

Then, as you operate your business, you can see how your actual sales and operating costs and expenses compare to your operating budget—and adjust as necessary.

Still have questions on operating budgets? Check out Gusto’s in-depth guide on how to create an operating budget*, complete with an operating budget template to help you get started.

How to set up payroll

If you’re going to hire a team, you’ll need to have a payroll system in place to ensure everyone gets paid accurately, on-time, and that your payment process is fully compliant with any applicable local, state, and federal laws.

Before you can run payroll for the first time, you’ll need to apply for an Employer Identification Number, or EIN, from the IRS, which you’ll use to report your taxes. (Depending on where you live, you may also need to register for an additional state and/or local tax identification number.)

Once you have your EIN, you’ll need to collect all the necessary payroll information from your employees (including their full name, date of birth, address, and social security number or EIN), categorize them as an employee or independent contractor, and have them fill out Form I-9 (which verifies their employment eligibility) and Form W-4 (for employees) or Form W-9 (for independent contractors).

From there, all that’s left to do is determine your pay periods (for example, are you going to pay your employees weekly or bi-weekly?), pick a payroll system, and voila!

You’re ready to run payroll for the first time. Looking for a more in-depth guide on getting started with payroll? Check out Gusto’s step-by-step guide on how to set up payroll for the first time*.

Cash flow forecasting and planning for the future

Part of setting up your business finances is planning for the future.

Cash flow forecasting is a process that allows you to create projections for the financial future of your business. Basically, cash flow forecasting allows you to experiment with different scenarios to see the financial impact they’d have on your business—which is information you can use to guide your business decisions and ensure you’re setting yourself up for future financial success.

When creating cash flow forecasts, you can leverage financial information you already have about your business (like your average revenue, cost of goods sold, and payroll and operating expenses) to see how your business would navigate a variety of financial scenarios in the future.

For example, what would happen to your business if your sales decreased by 25%? Do you have room in your budget to hire new employees—and, if so, when? At what point will you be able to take a substantial distribution from your business?

These are all questions you can explore using cash flow forecasting—and while forecasts are just financial projections (and not financial facts), they can help you plan for the future and make the best financial decisions for your business.

For more on cash flow forecasts—and how to use them to plan your business’ future—make sure to check out Gusto’s guide on making business projections using cash flow forecasting.

Get out there, set up your business finances, and get your business off the ground

There are a lot of items to check off your to-do list as a new business owner. But now that you know the proper steps to take when setting up your business finances, you have everything you need to check “get business finances in order” off your list—which leaves you free to focus on actually getting your business off the ground.