Finances and taxes…blah, blah, blah! We're creatives! We're artists! Who wants to sit at a desk and crunch numbers?
I know this subject is never a fun one to talk about but it’s super important for every hairstylist to learn.
No matter what type of salon you’re working at, you still have to run your business. You have business write-offs to claim. And you still have taxes to pay.
Don’t Do What I Did
I’ve been in this industry close to 40 years, and I learned a lot about taxes the hard way. I was busy creating and growing my business but I wasn’t very organized when it came to taking care of my finances.
And then it happened. One year I had to go through an audit! Ugh! It was the worst because I wasn’t prepared.
Even though it was beyond stressful, I learned so much from the experience. And now I can share some insight with you so you can be prepared whether you have to go through an audit or not. (Let’s hope you don’t!)
Here are my 5 top suggestions for managing your business finances:
1. Open A Separate Business Checking Account
Opening a business checking account keeps your business money separate from your personal money. This simplifies your finances and keeps them straight. This also means you won’t accidentally spend your business money for personal purchases.
Co-mingling funds – using business money for personal reasons – is a red flag that could trigger an audit.
2. Organize Your Paperwork
It’s so important to set up and maintain a good filing system. There’s nothing worse than searching through random stacks of paper for receipts that you can’t find! No proof of purchase, no write-off.
Your filing system doesn’t have to be elaborate. It can be as simple as an expanding file to keep any business related papers and receipts in one place. Or you may prefer to use an app to scan your receipts so you can be as paperless as possible.
Don’t be afraid to experiment. If you set up a system that you end up dreading to use, try something else. The best filing system is the one you’ll use!
3. Set Up An Online Booking App
Find an online booking app that’s created specifically for hairstylists. It is a must-have all-in-one booking and business management system. And it’s worth every penny! Think about how much time and money you’ll save with a program that offers tools like:
convenient online booking for your clients
text and email communication with your clients
payment processing for debit and credit card payments
inventory management for your retail products
income and expense management
digital receipt storage
4. Save For Your Taxes
Set up a budget for your taxes. Putting this designated amount of money aside each day or week or whenever you get paid is a good habit to maintain so you have the funds readily available to pay your taxes on time.
If you earmark that money for taxes right away, you won’t accidentally spend it on other business expenses.
5. Hire A Professional
I highly recommend that you find a reputable accountant who is familiar with our industry. The tax laws change frequently so the accountant can inform you what deductions you can take and whether or not you’ll need to pay quarterly taxes based on your income situation. It's also a good idea to check with your accountant before you move money between your personal and business accounts to avoid an unwanted taxable event. You may wonder if you should have an accountant handle your tax returns. This chart can help you decide if you should hire an accountant or use a tax software program to file your taxes.
If you get audited, you’ll definitely want to hire an accountant to help you through it. Don’t attempt this alone. This is huge!
Once you set the above systems and habits into action, make it a priority to stay involved in the financial side of your business so you have clarity about your true bottom line. Also, be sure to maintain good communication with your accountant to avoid any penalties or unexpected taxes.
By turning these processes into a routine part of your business, it will free you up to focus on all the FUN stuff. The creativity and the artistry you love most! What's your greatest financial or tax management challenge?
On Point Hair Academy and my Own Your Chair program were created for stylists like you who need just a little help (or a lot of help) in different areas of their hairstyling business. You don't have to take this hairstyling journey alone.
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Remember, your work is not about you. Your work is about how you make your clients feel.