For more than a month now, the most popular post on Pastor’s Wallet has been Business Ideas For Pastors That Want To Make Extra Money. It seems there are a lot of pastors out there looking to entrepreneurship to finance their ministries or supplement their pastoral salaries.
In that article, I gave you some good ideas of ways to make money that can work around your ministry. But what comes next? How do you even set up a business? How do you actually manage small business finances so you know what you’re earning and don’t get in trouble with the IRS?
Consider Your Business Entity
Your first decision is the kind of business entity you are going to create. For most people starting out, they have a sole proprietorship. That’s what I have as a freelance writer, I’m a sole proprietor. I didn’t do anything to create that, I simply declared, “I’m in business,” and started earning money.
However, if you’re going into a line of business where you have a chance of being sued, you may want to incorporate or set up a limited liability company, or LLC. That way, if someone sues your company, your personal assets are protected. If someone were to sue me as a writer, because I’m a sole proprietor, they would be able to go after all of the personal assets that my husband and I have. Incorporating or setting up an LLC is more work and costs money, but depending on what your business is, it may be well worth it.
Keep Personal And Business Finances Separate
You know how in Leviticus there are bans against mixing things, like fabrics, seeds, and cross-breeding animals? (19:19) I’d like to add one more to that list. Finances. Thou shalt not mix your personal finances with your business finances.
When you start a business, you need to open a business checking account and a business savings account. All of the money your business earns needs to go into those accounts. All of the money your business spends needs to come out of those accounts. Find a dependable way to track all of your businesses finances separately, such as using a debit card for all business expenditures and nothing else.
Plan For Taxes
This is where a lot of people goof up and live to regret it. You will have taxes due on all business income. You have to pay income taxes and both the employer and employee portions of the payroll tax.
This is why you opened the business-only savings account. Put 25% of everything that comes in into that account. That is for paying taxes and nothing else. Now, when your tax bill comes, you will be ready.
Pay Your Quarterly Estimated Taxes
Since you’ve so diligently put 25% of everything you earn into your business-only savings account, you are prepared to pay your taxes. And here’s the most important part- actually paying them. To figure and pay your quarterly estimated tax payments, you will use Form 1040-ES. You can pay online, over the phone, or by mailing in a check or money order.
Figuring your taxes may be a little more complicated. Form 1040-ES has worksheets you can fill out to calculate your payments. Personally, I know how much I make each month, so I can easily calculate my payroll taxes for the quarter. I know what tax bracket we are in because my husband has a steady income, so I just pay that percentage of my income as well. It doesn’t take into account deductions and things like that, but it is a small amount of money, so it doesn’t make a big difference.
Track Everything
The best way to track everything is with accounting software, like Quickbooks, Freshbooks, or Sage. Come tax time, you will be glad you have everything in a computer program as opposed to a bunch of receipts in a shoebox. You need to be able to track all income and expenditures and be able to identify the various types as well.
Organize Your Papers
It’s not enough to have color-coded folders and a sleek filing system. You actually have to use it. My dad is the perfect example. He has a highly sophisticated organizational system, with piles of paper everywhere that never made it into his system. It’s now both frustrating and overwhelming.
Unless you can manage to keep everything digital, you will need a paper filing system for receipts and paperwork. These things are important for tracking, planning, legal compliance, and tax preparation. Some files you may need are:
- Accounting and bookkeeping records
- Bank records
- Personnel records
- Contracts (including leases and purchase agreements)
- Permits and licenses
- Insurance
- Taxes
- Intellectual property (copyrights, trademarks, patents, etc.)
- Marketing material (brochures, coupons, business cards, etc.)
- Forms (employment applications, purchase orders, etc.)
- Correspondence
Stay Up To Date
A lot of people get excited when starting a business and set up a bunch of well-organized processes and organizational systems. But, then they actually start doing the work of the business. And they can never seem to find time to keep up with the paperwork.
Set aside 10-15 minutes each week to make sure you are all caught up with filing, sending payments, etc. Even if you’d rather get a root canal, staying on top of your business finances and paperwork is something that will make your life infinitely easier and you’ll never regret it. Trust me, I’ve seen what happens when you get behind, and it’s not pretty.
There you have it. Now you know how to navigate the back end of things so you can go start your business. If you do start a business, I’d love to hear about what you chose to do, how things are going, and any challenges you are facing. You can leave a note in the comments or let me know here.
