003:
Getting your $ in order
business banking
Whether you’ve decided to open an LLC or go with a Sole-Proprietorship, you’re going to want to stay as organized as possible with your financial transactions.
I can’t stress this enough —
keep your personal and business expenses separate.
You will save yourself and/or your accountant so much time and energy if you can stay organized from the beginning.
Business Checking Accounts
Every business needs a checking account in order to deposit income (since you’re going to be keeping your personal funds separate!). There are many options when it comes to choosing a bank. Note that most banks will require an EIN (Employer Identification Number) or TaxID number in order to open an account, so be sure you have that information before you submit an application.
Here are a few things to consider:
Would you like to be able to visit a physical bank location?
Will you be maintaining a balance in this account?
How many transactions per month do you estimate yourself making?
Based on your answers to the above, use the recommendations below to choose the account that will work best for you.
*All data was compiled on or before 10/15/19. Rates and prices may change.
Azlo
$0 sign up bonus
$0 first deposit minimum
$0 monthly fee
Azlo is a digital or online bank so there is no physical location. This means the bank does NOT accept cash deposits.
Free ATM withdrawals at any AllPoint ATM
Unlimited monthly transactions
This bank provides unlimited digital invoicing, straight from your banking app. They allow you to connect Stripe, PayPal or Square accounts to accept credit and debit card payments or receive funds fee-free through check or bank transfer.
Azlo allows you to pay bills electronically and will mail (physical) checks on your business’ behalf.
best no fee if you don’t need a physical bank location
Chase total Business Checking
$200 sign up bonus — deposit $1000 within 20 days of opening account, maintain the $1000 balance for 60 days + complete 5 transactions within 60 days
$0 first deposit minimum
$15 monthly fee ($12 monthly fee if opt-in for paperless statements) — unless minimum balance of $1500
Chase has over 5000 branches. You are able to deposit cash into your business checking account at one of these physical locations.
Free ATM withdrawals at any of the 16,000 Chase ATMs
You’re limited to 100 monthly transactions, then you would be charged .40 cents for every additional transaction.
Chase allows $5000 in cash deposits per month — anything above that will incur a fee.
Chase charges a standard wiring fee for international and domestic wire transfers
best if you can keep a min balance of $1500 + need to deposit cash
I looked far and wide for another option to break down but these two seem to really cover all bases for what you could be looking for in a business checking account.
I personally have used each of these accounts (for different businesses), and have had great experiences with each.
Business Credit cards
In the podcast ep. 008, I strongly recommend that you wait to open a business credit card until you’ve gotten the full picture of what your in flow/out flow of funds will look like for your business — give it maybe 6 months.
One of the mistakes that I made when starting out was that I charged all of my business expenses to the credit card without realizing that I wouldn’t have enough coming in each month to cover them — forcing me to carry a balance on my card for a little over a year. If I could do it over, I would have spent directly from my business checking account, forcing myself to pay more attention to my purchases, ensuring that I had enough in the account to cover everything.
Once you do have a handle on your budget, a business credit card is a great way to earn points, cash back, and other perks.
Here are a few things to consider:
Will you be needing to carry a balance on the card? (hopefully the answer is no!)
What is your personal credit score?
What kind of rewards are you looking to acquire?
Based on your answers to the above, use the recommendations below to choose the account that will work best for you.
*All data was compiled on or before 10/15/19. Rates and prices may change.
American express blue business cash card
0% APR for the first 12 months — meaning you pay no interest on purchases
$0 annual fee
660+ credit score requirement
Earn 2% cash back on all purchases up to $50,000 each year
best if you want cash back + no fees
American express blue business plus card
0% APR for the first 12 months — meaning you pay no interest on purchases
$0 annual fee
660+ credit score requirement
Earn 2x points on all purchases up to $50,000 each year
best if you want points + no fees
Chase ink business preferred credit card
Welcome offer — 80,000 points if you spend $5000 in the first 3 months
17.74-22.74% APR
$95 annual fee
700+ credit score requirement
Earn 3 points on travel, shipping, advertising, and internet/cable/phone service expenses; 1 point on all other transactions
best travel rewards if you can pay your balance in full each month
capital one spark classic for business
24.74% variable APR
$0 annual fee
580+ credit score requirement
1% automatic cash back on all purchases
best if you’re in need of rebuilding your credit
invoicng clients
Let’s talk about how you’re going to get paid (finally!).
Now that you’re breaking away from the corporate setting, you’re going to be making more (or at least keeping more of the fee you’re charging) — but this also means that YOU need to be the one doing the invoicing to make that happen.
Billing clients can be tricky. Especially when dealing with policies and cancellations. But not to worry! I’ve made all the mistakes, so you don’t have to. A little preparation work here will go a long way in the longevity of your client relationships and your income steams. I would advise you accept cash, checks, bank transfers (depending on your bank’s wire fee), and one of the credit card processing companies outlined below.
Choosing how you will accept payment
It is best to give your clients some choice in how they will be paying you — I would highly suggest you use the monthly billing method I’ve created (for regular, reoccurring clients), but more on this later. Just like any other business, there should be a few options when it comes to which forms of payment you’ll accept.
Cash + Checks + Bank Transfers
Usually the most ideal way to get paid, but often also the most inconvenient for clients.
At the very beginning of my private training career, I had most of my clients paying me in cash for the month at a time. This was proven to be less than ideal because:
Most clients didn’t love withdrawing and carrying around thousands of dollars on a monthly basis.
I personally found the physical exchange of cash to be awkward. It feels different to me when I pay for a coffee with a $5 bill, to someone behind a counter. Since you have such a personal relationship with your clients, it felt more to me like when your uncle slips you a $50 during the holidays, than a legitimate business transaction.
Cash isn’t automatically recorded in your statements — you have to be sure to keep a separate record.
I didn’t like to have to spend the cash I made. Almost all of my purchases (for business and personal expenses) are made online and I never found that I would make it to the bank on a regular basis in order to deposit the cash.
Checks and direct bank transfers are a good, “fee-free” way to receive payment. It isn’t quite as convenient as charging the card you have on file for a client, but it’s a close second. For your more analog clients, i’ve found that simply sending an invoice for the month via email and having them submit a bank transfer or write out/send a check, works well.
*A bank transfer or wire transfer is done by an individual requesting that their account send funds to another account — the client will need your bank account number and routing number to perform this. The funds are deposited into your account directly within 24 hours. There is often a fee associated to receive these transfers, but check directly with your bank before agreeing to have a client pay you using this method.
venmo + paypal
It might be tempting to use Venmo or PayPal to conduct your business transactions, but both companies forbid this in their policies.
Venmo may NOT otherwise be used to receive business, commercial or merchant transactions, meaning you CANNOT use Venmo to accept payment from (or send payment to) another user for a good or service (help.venmo.com).
Here are the usage guidelines for PayPal Personal + Business Accounts:
Personal: Recommended for individuals who shop and pay online, or wish to send or receive personal payments for shared expenses such as splitting of dinner bills or rental charges; for casual sellers or non-businesses who wish to get paid online, and who also make online purchases.
Business: Recommended for merchants who operate under a company/group name. It offers additional features such as allowing up to 200 employees limited access to your account and customer service email alias for customer issues to be routed for faster follow-ups” (paypal.com/smarthelp).
Keep usage of these two services for your personal transactions.
Credit cards
Accepting and invoicing is the most convenient thing you can offer your clients, but you will be paying for it. There are a number of credit card processing companies.
Here are a few things to consider:
Will you be needing to carry a balance on the card? (hopefully the answer is no!)
What is your personal credit score?
What kind of rewards are you looking to acquire?
Based on your answers to the above, use the recommendations below to choose the account that will work best for you.
*All data was compiled on or before 10/15/19. Rates and prices may change.
Square
2.6% + .10 cents fee (for in-person + square appointments transactions) + 2.9% + .30 cents fee (for invoices + online transactions)
Integrated invoicing + scheduling app
Organized and easy to use terminal/dashboard
Accept payments online and in-person — via the (free) Square Reader
Automatic bank transfer in 1-2 business days
Option to “Instantly Deposit” funds, for an additional fee
Square Card — debit card access to your Square balance
best if you want a seamless user experience for you + your clients
Paypal Business
2.9% + .30 cents fee
Integrated invoicing
Can be used to accept all major credit cards and/or PayPal payments
Accept payments online and In-person — via PayPal Here + the (free) card reader
Bank transfer typically in 1 business day
Option to “Instantly Transfer” funds, for an additional fee
PayPal Business Debit Card — debit access to your PayPal account
best if you want to take in-person + online payments
Stripe
2.7% + .05 cents fee (for in-person transactions) + 2.9% + .30 cents fee (for invoices + online transactions)
Integrated invoicing with subscriptions and reoccurring invoicing options
Accept payments online and In-person — via Stripe Terminal + the card reader options from $59
Payments are bundled together and bank transfers typically take 2 business days
Option for “Instant Payouts”, for an additional fee — compatible with most banks
No debit card available
best if you want to monetize your squarespace site
Invoicing Strategy
The approach you take when invoicing clients is equally as important as the ways you choose to accept payment.
As mentioned earlier, I have quite a bit of experience with improperly and inefficiently managing invoices - I’ve even had an invoicing mishap that resulted in a client choosing to no longer work with me. There were a few errors made on my part, I’ll go into detail later on in this section.
requiring pre-payment
When working at a corporate gym, I operated under the policy that a session could not be completed unless the client had at least 1 session in their account — essentially, each session had to be pre-paid.
This might not seem necessary when you’re dealing with clients you’ve been working with for years, but I’ve found requiring pre-payment to be essential for other reasons:
In my experience, when a client late-cancels a session (cancelling within your policies’ window), they are much less likely to ask for an exception or argue your policy if he or she has already paid for the session. I believe this to be due to the idea that if the money has already been spent, it’s less of a “loss” than if they have yet to pay you for the session.
two-way Cancellation policy
It is standard to have a 24-hour cancellation policy for clients. This protects you and your schedule. The rationale is, if the client alerts you of a cancellation with more than 24-hours notice, you will have the opportunity to fill their time slot with someone else.
You can choose to modify the window of time — I’ve seen policies that range from 12-hours to 72-hours notice.
I’ve even seen some trainers that have their clients pay for their reserved time slots regardless of if they make it to the session or not — this has always seemed a bit excessive to me, but if that’s something your clients would be up for, it’s a great way to keep your income consistent when clients are sick and/or traveling.
You will have your clients sign off on your cancellation policy when they complete the on-boarding paperwork. Templates will be outlined in Section 5: Acquiring + Retraining Clients.
It is also an excellent idea to make it clear what will happen when you have to cancel a session, especially within the time constraint you give your clients — a two-way cancellation policy.
This is where I ran into the issue I mentioned earlier in this section. The client had cancelled a session within the 24-hour cancellation period that month and so had I, due to sickness. I had NOT outlined my policy when it came to me cancelling sessions.
When I invoiced her for the next month, I included the session she cancelled and she questioned my calculation. I explained that she had late-cancelled one session to which she responded that I also late cancelled so she shouldn’t be charged. Since we had never discussed the policy for when I cancelled a session with short-notice, I was going to remove that session from her invoice and move forward with a new understanding of what would happen if I had to cancel within the cancellation window.
Before I could respond, she had sent a message stating that she would no longer like to work with me. I believe this was an overreaction to the situation, but she felt that she was being taken advantage of. I can understand her position and I take full responsibility for this occurring because as the business owner, it was up to me to set the standards. In the end, it was an unfortunate way of learning this lesson, but I won’t be making this mistake again.
It’s entirely up to you, but I would suggest offering clients a comped (or free) session when you late-cancel their session. This results in the loss of 2 sessions for you, but shows clients that you respect their time as much as you expect them to respect yours. This also acts as a deterrent to cancelling your sessions unless it’s really necessary.
*Be mindful when you let late-cancellation sessions slide past your policy. There will be times when circumstances are out of your clients’ control and you want to give them a break. This of course okay to do, but you want to make it very clear that you’re making an exception to your policy - that way they won’t come to expect it every time something comes up.
I would recommend putting some thought into choosing the circumstances for which you allow exceptions. Personally, I’ve learned that unless it’s a true emergency or loss of an individual close to your client, it’s best to stand by your policy. The more you respect yourself by enforcing this boundary, the more your clients will reciprocate this respect.
My personal Invoicing strategy
Adhering to the lessons I’ve learned overtime, this is the invoicing strategy I currently employ:
A few days before each months’ end, I will send an email or ask in-person if my client is traveling the upcoming month.
Depending on his or her answer, I will add up all the sessions they are scheduled for (minus travel, of course), and send an invoice for the upcoming month which is due on the 1st.
Clients know that any sessions they early-cancel (or cancel before the notice period) will be carried over to the following month.
This method works well for all but two of my clients — they both are unable to pay that much in a lump-sum and I instead, invoice them each week.
Using this strategy, I am able to know how much I will be making each month before it even starts — which is important when your income can fluctuate based on factors out of your control, like client travel.
setting your business budget
determine your fixed expenses
In order to accurately calculate your budget, you’re going to want to know how much money you need as a baseline. This information will allow you to know how many clients you will need at which price you decide to charge, to make a profit (which is the goal!).
Fixed expenses are costs that do not fluctuate with changes in sales — mandatory spending that is needed to keep your business functional.
Examples of fixed expenses include:
Space rental
Liability insurance
Certification + industry dues
Subscriptions: scheduling apps, phone bills
Equipment
Advertising: website, photography, graphics, paid ads
You’re going to want to outline all expenses you for-see or project yourself needing to make. Start small and be conservative. Only commit to what is truly necessary for the proper functioning of your business — you can always add and improve in the future.
Do your research to accurately estimate what each of the fixed expenses is going to cost you (per month) — for most of these categories, you will be able to find information online. But for specific expenses, like space rental fees, you’re going to have to do some research for yourself.
Once you’ve gathered all of the information for your estimate, you can organize it any way you see fit — I use a spreadsheet which allows me to keep track of all fixed expenses and income in the same place. Simply add up the estimated monthly expenses and you have an important number for us to continue to work with.
Now remember that this number is just an estimate — you’re likely doing this work before you’ve started your business, so you don’t know for sure what your actual expenses will look like month-to-month. That’s why I recommend playing it safe for the first 6 months that you’re in business so you avoid overextending your business and going into debt from the jump.
pricing your time
Now that you have an understanding of the base-line amount of money your business needs to function on a monthly basis, you can begin to figure out how many hours you will need to work and how much you will have to charge for your time. Providing a service is a unique business structure in that your time is directly exchanged for money. I’m sure you’ve noticed that there is a cap on how many hours you can work, therefore the variable you can adjust is how much you charge for that time — or price.
Since you’re coming from a setting with a set price, your clients are going to expect you to remain around or under the price they’ve been paying for your service — this is really dependent on how inconvenient your move to becoming a private service-based provider is going to be for them. Certain clients won’t have a problem at all, while others will expect to be paying less if they are now required to make commute an extra 15 min for your sessions.
In my personal experience, I chose to make things a little more complicated than they had to be. My rate at Equinox was $140, so I dropped that to $130 for any clients that continued to train with me at a private training gym (as an incentive to continue to work with me) and I advertised my rate as $140 for any new clients that I didn’t have at Equinox.
Then I received suggestions that my rates should be lower if I was working with a client in his or her home or home gym. I then lowered my rate for in-home clients to $120 because I wouldn’t be required to pay a gym-fee, but I know of a few trainers who actually charge more for in-home sessions because of the commute they have to make to get there.
Eventually, about 2 years into having my private training business, I was fully fed up with having to keep track of who had what rate, I raised my prices to be $130 for in-home sessions and $150 for all private gym sessions — this process was a major challenge for me and I will go more into that in Section 5: Acquiring + Retaining Clients.
So, if I were to do it all over I would have kept things simple. I would have made my rate constant at $130 across the board for all private gym and in-home sessions with the reasoning that I have to cover a fee with the gym sessions and spend extra time commuting for the in-home sessions. And then I would have still increased that rate by about 15% after 2 years — making it $150 for all clients.
You likely have a range of hours you are comfortable working — not too many that you feel burnt out, but not too few that you don’t have enough to cover your expenses. Using that range, you can begin to work with the following equation to determine what rate or price you should be charging:
rate x hours - fixed expenses = business profit
I would recommend calculating this for the month — this way you use your calculated profit to ensure you can cover your rent and other large, monthly expenses.
*Please note: The result of this equation is not your personal income, it is the monthly business profit. Personal payout will be discussed in the next session.
payouts
You’ll no longer be receiving a paycheck in the mail every two weeks, which is freeing, but it doesn’t mean that every dollar earned by the company is a dollar in your bank account. Having a systematic way to pay yourself is one of the best things you can do for the long-term financial health of your business.
Giving yourself the potential for reinvestment in the company — expenses like continuing education or new (sometimes unexpected) equipment upgrades that have to be made.
As mentioned earlier, in the Business Credit Cards section, I got myself into a bit of trouble when I first started out. At first, I did not leave any funds in my accounts for reinvestment in the company. Instead, I transferred every dime that my training business made directly to my personal bank account. I failed to recognize that I would have business expenses, would have to cover continuing education, certification dues, gym-fees and most daunting of all, TAXES (we’ll be covering next).
This miscalculation and general unpreparedness resulted in me needing to carry a balance on my business credit card for some months while I caught up.
There are a few strategies you could choose from when deciding how to determine your payout, but I would suggest following some general guidelines instead of creating an uncompromising set of rules for yourself, as most service-based business’ experience fluctuations in income from month-to-month (as I’m sure you already know).
Save for quarterly estimated taxes
Use the 2019 1040-ES form to determine the amount of tax you will owe each quarter — much more detail on estimated taxes will follow.
You can also use a calculator, supplied by Bench (a bookkeeping service) to determine your estimated payments.
Calculate large (unfixed) expenses + budget overtime
Certifications, events, conferences and equipment can often seem quite expensive, but if you plan ahead (yearly or quarterly, at least) you will have the opportunity to split your savings across a few months and more manageably cover the costs.
Keep a minimum balance
It’s always a good Idea to build up a cushion for yourself that you will keep in your business checking account. The amount you keep is up to you. I would recommend building this up through the same strategy I offer when it comes to large expenses — determine how much you would like to save and work back from there, saving a piece each month.
I would personally suggest starting off with $1000 as your minimum balance and increasing as you see fit — remember this is there to act like a safety net for unexpected expenses.
Once the three of these are taken care of, you should consider any additional expenses that are unique to your business — these may not present themselves right away, so I would advise to act conservatively in the first 6 - 12 months, until you get a full understanding of the workings of your new business.
Testing your price
Going back to the equation mentioned earlier, where you determined a range of rate and range of hours that would work well for you, consider how these prices will land with your existing and future client base.
Will they be excited to be saving a bit? Or are they going to be happily willing to pay more per session?
Whatever price you land on, it’s most important that your current clients feel comfortable and happy paying it — you could even test it out with a client or two, suggesting that you plan to raise/lower your rate to X and see how they respond. A large part of the success of your new, private business, lies in the loyalty of your current client base.
Also know that you’ll always have the option of raising your price — bringing your rates down, however, is much less graceful.
quarterly estimated taxes
Now that you're no longer having taxes taken out of your paycheck, you’re responsible for paying them yourself — and they’re due each quarter.
If you fail to stay on top of your quarterly payments, the IRS could charge you interest and possibly nonpayment penalties.
Federal taxes — irs
This differs depending on the year, but you can find out via the IRS that puts out a Publication 509 each year.
The IRS gives you about a 15 day grace period to get your estimates in order before they’re due. So for Q1 (Quarter 1) which includes January, February, and March; taxes will be due on April 15th. Now the IRS does not operate on the standard quarterly system, which would break the year up into 4 sections of 3 months each.
Instead, the breakdown is as follows:
Q1 — January/February/March
Q2 — April/May
Q3 — June/July/August
Q4 — September/October/November/December
For 2020, here were the due dates.
Q1 — due April 15th, 2020
Q2 — due June 15th, 2020
Q3 — due September 15th, 2020
Q4 — due January 15th, 2021
To know how much to pay for each quarterly estimate, you can use the 1040-ES form. Though it’s not the most user friendly and definitely requires some effort, it is the safest and most effective way to ensure you’re properly estimating your taxes for each tax year (as rates often change year-to-year).
To submit payment to the IRS, you have a few options:
IRS Direct Pay, allowing you to pay directly from your bank account
Credit or Debit Card, through 1 of the 3 payment processors — there are fees associated with this option
By Check, using the IRS 1040-ES form
state taxes: in new york state
If you do not reside in New York State, the following does not apply to you. Please find your information on your states’ website.
You are required to make estimated state tax payments in NYS if you receive certain types of taxable income with no tax withheld. Included as an example of taxable income is self-employment income, you’ll find the full list here.
For 2019, here were the due dates (same as Federal Taxes).
Q1 — due April 15th, 2020
Q2 — due June 15th, 2020
Q3 — due September 15th, 2020
Q4 — due January 15th, 2021
To know how much to pay for each quarterly estimate, you can use the 1040-ES form. Though it’s not the most user friendly and definitely requires some effort, it is the safest and most effective way to ensure you’re properly estimating your taxes for each tax year (as rates often change year-to-year).
To submit payment to NYS, you have a few options:
Create an Online Services account, allowing you to pay directly from your bank
Credit or Debit Card, through 1 of the 3 payment processors — there is a 2.25% fees associated with this option
By Check, using the IT-2015 Form
Through services like TurboTax and H&R Block - more on those below
Using tax preparation software
If you’re feeling confident in your ability to manage this aspect of your business, you can opt for a much more affordable option — using tax preparation software.
Here are a few things to consider:
Will you be needing to carry a balance on the card? (hopefully the answer is no!)
What is your personal credit score?
What kind of rewards are you looking to acquire?
Based on your answers to the above, use the recommendations below to choose the account that will work best for you.
*All data was compiled on or before 10/15/19. Rates and prices may change.
intuit TurboTax
$119.99 self-employment rate + $44.99 state additional
TurboTax Live with a final review from a real CPA or EA
Free Quickbooks Self-Employed
Ability to create W2s + 1099s
Free Audit Assist support to uncover any potential red flags
best if you want a way to keep track of your books
H&R Block
$79.99 + $36.99 self-employment rate
Technical Support by Phone
Free Federal e-file
Audit support guarantee
