Managing your income and expenses (and taxes) in your virtual assistant business is essential. If you're starting and you don't have any clients yet, or only one or two, you can create a habit now of tracking your income and expenses.
Here are a few tips to track your virtual assistant income and expenses, so you'll know exactly how much you're bringing into your business and how much is going out. Knowing the costs going out will help you determine how much income you want to make each month.
Tip #1: Open a Business Checking Account.
Start the process by applying for a free EIN (Employee Identification Number) from the IRS. Use this number to get a business checking account to track all our income and expenses. I've noticed that many virtual assistants struggle to find a bank to open their business accounts. A simple solution - try the bank you use already for your account. After I got my business license from my state and applied for my EIN, I went to my local bank, took my business license, emailed a copy of the EIN certificate, and opened my account. Easy peasy. Every time I use my app to check my account balance, I see my business account balance. I also received a debit/credit card with my business account, which allows me to use my bank card anywhere, just like my personal bank card.
Tip #2 - Use A Spreadsheet to Track Your Income and Expenses
It is so much harder to find and track your expenses, even those that seem unimportant, if you don't record them when the cost happens. You don't want to be in a position where you can't find them later because it will throw off your bottom line, and you know how much money you made at the end of the month.
A simple tip to keep up with your expenses (especially at the beginning of your business) is to create a spreadsheet in Google Sheets (because no matter where you are, you will have access to it). Create two columns for income: the amount and the client. Create two columns for expenses: the amount you spent and where you spent it. When it comes time for your taxes, you will have a running total of what you spent versus how much you earned in one easy place.
As you grow over time and get more clients, you can use something more robust like Quickbooks or Freshbooks. But honestly, I find that my Google Sheet works just fine for me, and I've been in business for three years. I spend one day at the end of every month tracking my expenses and my income.
The importance of tracking finances is that you will see if you're spending more than you're earning, which might sometimes happen. You might have to pay the yearly fee for Dubsado or your website, or they may be a course you want to take. But overall, you want to make sure you come out making more money than you spent at the end of the year.
Tip #3 - Operate Within A Budget
You will have expenses.
You will have income.
You need to make a profit.
You need to pay yourself.
You have to pay taxes.
Plan for it. All of it.
Follow the budget rule recommended by Mike Michalowicz in his book Profit First.
5% Profit
50% Owner Pay
15% Taxes
30% Operating Expenses
Let's break that down. For example, if you make $1000 a month, this is what you should do:
Profit - $50
Owner Pay - $500
Taxes - $150
Operating Expenses - $300
If you need to switch these percentages up, you can. This is YOUR business. However, the only one I wouldn't change is taxes. You will be able to write off everything you purchase for your business as expenses, but you don't want to end up owing the IRS any money when it's tax season. So, be on the safe side and save 15% for your taxes, just in case.
Bonus Tip: Create An Email Account For All Of Your Email Receipts
Let's face it. We all run an online business. A lot of our business happens online. You might buy courses, digital products, or something from Amazon. When you do, they email you a receipt. Don't let that receipt get lost in the wasteland of your email. Create an email account specifically for your taxes—for example, virtualassistanttaxes@gmail.com. You can create a free email address with Google. As soon as you receive a receipt, email it to your taxes account, and you will ALWAYS have it. If you purchase items in person, take a picture of the receipt, then email it to your tax email account. If your business ever gets audited, you'll never have to worry about looking for your receipts. You can thank Shannon Baker from The More Than Capable Mompreneur for giving me this tip a couple of years ago.
Paying yourself and tracking your expenses as a virtual assistant is essential for long-term success. While it may be difficult at first, find a tracking system that works best for you. With consistency, you'll develop an efficient system that allows you to take full advantage of the benefits of becoming a virtual assistant.
