Starting and owning a bakery, including a home-based cottage food operation, requires you to track and manage your business finances. It’s not enough to keep a few notes written down somewhere, you need to know exactly how much money is going out (expenses) and coming in (income) your business on a weekly and monthly basis. Knowing this information will help you to plan a budget and estimate your quarterly and annual income, and manage your tax liabilities. This information will also help you to plan your business activities such as marketing, advertising, and purchasing that new Kitchen Aid mixer. To assist you with these tasks, there are many tools and resources available in order to easily manage your baking business finances. You can also hire a professional to help you manage your business accounts. However, before you do that, it is important to understand what it is that you are tracking and why.
If you are brand new and just now setting up your business, here are helpful tips to help you as you track your finances and manage your money. The tips below will help you get your cake business finances on the right track, and with some planning and preparations, you can stay organized and easily manage your bakery finances effortlessly. If you are already established, this can be a helpful reminder and a great opportunity to do a business check-in on your finances.
Establishing the foundation to your bakery business finances
Creating business accounts helps with the management of your bakery business finances because all of your business funds are in one place. First you should create a business checking account, although establishing savings, and a line of business credit is ideal. To do this you will need proof of a business such as your DBA or LLC registration. At a minimum you will need a debit card, and will also want to get a business credit card to establish business credit (although a credit card is not critical at this step and we actually advise you wait until you have income to consistently pay off any credit as you use it). This sets the foundation for your cake business and is the source of your financial management activities.
When getting started, it helps to deposit an initial amount of funds from your personal account. If you already have orders coming in, this step isn’t necessary as your payments from cake orders will be deposited into this account. If you made and initial deposit with personal funds, as you start to earn income from your cake business, you can pay yourself back. After setting up your accounts, moving forward, all business expenses should now be paid from this account.
Keeping your business account separate from your personal account is important because it makes it easier to track and manage your business finances, especially when it tax time arrives. Taxes are an essential component to managing your business and failure to effectively manage them can have serious repercussions for you and your business. Since taxes vary by state and country, you will need to check what you are responsible for based on where you are located. For those in the United States, irs.gov and your secretary of state office can help to guide you on your tax obligations.
What accounts to track
Tracking your accounts will vary, however, to get started here are some basic accounts you will need to track:
- Professional/legal Fees
- Advertising Expenses
If you hire a professional bookkeeper or accountant, they can help you manage this and ensure you are tracking everything correctly. Tools like Quickbooks can also help you manage your accounts successfully.
Tracking your finances tells you exactly what your money is doing and where it is going on a monthly, quarterly, and annual basis. You also know exactly how much income is coming in to your business on a regular basis. Knowing this information allows you to create projections, or estimates, on how your business is growing. This information also allows you to plan for purchasing more tools, equipment, or supplies for your cake business.
Money Management Tools and Resources
The final task that will make managing your baking business finances much easier is to select the tool or software program that you will use to manage your money. You can use an Excel spreadsheet (or Google Sheets), although some advanced skills are needed if you want to incorporate formulas to help you calculate with accuracy. You can also use an accounting program, such as QuickBooks, where the business categories will already be set up for you. QuickBooks then makes it easy for you to export your business and financials information so you can take it to your tax or accounting professional.
What is helpful about using software programs for your bakery business is that programs make it easy for you to print out statements, expense reports and any other files that a professional accountant will need to prepare your taxes.
Managing your bakery business finances doesn’t need to be a burden. By creating a foundation and setting up your accounts and tools in the beginning, you can easily track and manage your money and see your cake business grow and succeed!
As always, this is educational and informational support to get you started in setting up your cake business and you should seek out the professional advice and expertise of a business finance or accounting expert to help guide you an ensure everything is setup correctly for your business location.
When you got started, what did you do when setting up your finances? Share your words of wisdom to ne cake business owners in the comments!