Invoices. Taxes. Bookkeeping. Got ya feeling like this?
Want tips from a CPA on how to better manage the finances for your online business?
We recently had the pleasure of meeting Cathy Derus from Brightwater Accounting. Cathy has become our go-to for all things finance-related. She's a CPA and a financial planner. Most importantly, she understands the online business world. We asked Cathy if we could interview her and help take some of the mystery out of finances.
Tell us a bit about yourself and your businesses.
Hi! I'm Cathy Derus, a CPA and financial planner who’s ready to help you feel confident about your personal and business finances so you can get back to doing what you love: spending time with your family and friends, growing your own business, traveling, running marathons, and so on.
I’ve always wanted to pursue self-employment. As a kid, I sold friendship bracelets and held lemonade stands. My favorite board game is Monopoly. More recently, I opened an Etsy shop and started a personal finance/lifestyle blog all while plugging along in the corporate world. But those didn’t seem like the best use of my talents until I heard a couple of podcast episodes about being a self-employed fee-only financial planner for 20- and 30-somethings. I launched Brightwater Financial as a way to help people by putting my CPA and financial skills to work. But soon I realized that while not everyone thinks they need a financial plan, everyone needs to file their tax returns and businesses need help managing their books. Enter: Brightwater Accounting.
Brightwater Accounting offers cloud-based accounting and tax services. As a CPA and financial planner, I can help business owners juggle variable income with other big savings goals. I understand what it’s like to sell products on Etsy and what some of the unique expenses are as a blogger. I learned about operating a business and the importance of cash flow from my time in corporate accounting.
And I get it. Taxes are tricky. Whether you have started a new business or a new job, gotten married, had your first child, or just feel overwhelmed by the complexity of the tax return process, I am happy to advise you. As a CPA, I stay up to date on tax code changes so that you don’t have to. I offer year-round support for my clients by answering their tax questions and assisting with tax planning.
As for the name Brightwater, I believe you have a bright and promising future ahead of you. Life is fluid, like water; and, a successful plan is dynamic and flexible to your changing needs. Plus, I’m a former college swimmer.
Can you briefly explain the difference between what you do as a CPA/bookkeeper and as a financial planner?
As a CPA, I help business owners get their financial house in order. I advise on topics such as business bank accounts, tax structure, paying themselves, hiring employees vs. independent contractors, and provide referrals to other professionals (e.g., insurance agents, attorneys). My background is in financial reporting, so I can help business owners understand their numbers and assist with financial modeling, budgeting, and forecasting. We'll also discuss pricing, cash flow, and ways to improve profitability. And of course, I also prepare personal and business tax returns and filings.
My work as a bookkeeper is more about the day-to-day, nitty gritty of your business. I set up business owners in a bookkeeping system like QuickBooks Online, Wave, or Xero and then help them stay on top of it. If a business owner wants to completely outsource bookkeeping, I classify revenue and expense transactions and reconcile their bank accounts to prepare their financials for tax time.
As a financial planner, I help individuals get personal finances in order. Of course, this tends to be one and the same with entrepreneurs. Brightwater Financial’s signature service is comprehensive financial planning with ongoing accountability and coaching. We look at your big and little dreams and put together a financial strategy for reaching them. Nobody knows how the tax laws or economy will change, but we can work together to plan for what we do know and makes some educated guesses around what we don’t. When things (yes, including your goals) change, we’ll make decisions about how to adjust your strategy. I also work with individuals and small businesses to establish and manage their investments and retirement accounts.
Many online business owners have trouble finding CPAs who understand their business, especially bloggers and creatives. How does your experience set you apart?
Back in 2010, I started a personal finance blog, Fiscally Chic, while still working in public accounting. Along the way, I met others in the industry (like Danielle!) through FinCon, the financial blogger conference. There I learned about things like affiliate programs, social media, and more. Then in 2011, I started an Etsy shop as a way to bring in a little more income and put small business theories into practice.
From a technical perspective, I started my accounting career with a Big 4 public accounting firm. One of the things I really enjoyed about public accounting was providing on-the-job training to new staff. I’ve been told that I’m great at explaining complex financial topics in a simple way. Additionally, one of my strengths is building relationships.
My journey from public accounting to corporate accounting to self employment is important when it comes to relating to clients (like you!). I have more life experiences when it comes to changing jobs, negotiating salaries, starting businesses, buying a home, starting a family, updating budgets, and saving for those big goals. I can also relate to business owners on a more personal level because I understand the motivation to be self-employed.
What tools do you recommend for online business owners to help manage the financial side of their business?
My first recommendation for all business owners is to have separate business bank accounts and credit cards. It's one way to prove to the IRS that you are running a business instead of a hobby. And it also makes things SO MUCH EASIER when it's time to prepare your tax returns. I have separate Spark Business checking accounts and credit cards through CapitalOne.
Business owners are also responsible for estimated tax payments, so I also recommend opening another bank account just for taxes. Then each time you receive a client payment, sweep 25-30% into that bank account to cover any federal and/or state estimated tax payments.
Then use an online program like QuickBooks Online (or the Self Employed version) or Xero to manage the business's day-to-day finances. You can hire an accountant or bookkeeper to do a one time set up and training or completely outsource the work.
Many online business owners feel frustrated with the financial side of their business. What tips do you have to simplify the process?
One of the biggest struggles I hear from freelancers and entrepreneurs is how to budget with variable income. Some expenses like rent are fixed, yet their monthly business income is not. On top of that, business owners are dealing with two budgets: their personal and business budgets. Before you start thinking about income goals and pricing, it’s important to determine the bare bones budgets for your personal finances and business. If you’re not sure about your spending, I recommend creating an account with Mint or You Need a Budget.
Once you’ve calculated your minimum personal and business expenses, you have your bare minimum income goal for each month. From here, it’s time to layer on savings, retirement, and taxes. While there are as many spending/savings plans as there are diets, the “50/20/30 Plan” keeps things fairly simple: 50% Needs, 20% Savings, and 30% Wants. Your bare bones personal and business budgets are the 50% Needs. The 20% includes saving, retirement, and investing goals. The last 30% for Wants includes hobbies, eating out, and other lifestyle choices. If you have debt payments, include those in the “Savings” bucket.
Since income may vary, I recommend allocating savings based on percentages instead of dollar amounts. For example, make it a goal to set aside 5% of every client payment for an emergency fund. This will automatically help business owners save more dollars when income is higher and keep them from overextending themselves during leaner months.
And in order to reach your financial goals, you need to pay yourself first. This is important even if you aren’t a business owner! You can achieve this by setting up automatic transfers to your savings, retirement, and/or investment accounts. As an entrepreneur, this also means paying yourself a “salary” on a regular basis. Create a weekly or semimonthly automatic transfer from your business checking account into your personal bank account.
Even though your business income might fluctuate, receiving regular “paychecks” will ease some of the stress of paying your personal bills. Plus, getting into the habit of paying yourself first gives you a much-needed financial cushion and may force you to earn more to pay for your desired lifestyle.
Finally, business owners should evaluate where their time and effort is best spent. How much do you value your time? Yes, you can Google just about anything, but eventually it'll be worth it to hire a CPA for your business and personal finances.
We want to give a big thank you to Cathy for taking the time to give us these tips. Sign up for her mailing list to receive Are You Running a Business or a Hobby, which has even more great info on the financial side of your business.
More from Cathy:
The Financial Side of Your Online Business with Cathy Derus (podcast)
Tax Tips for Your Online Business
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