The Financial Foundation Every Small Business Needs
You don’t need a finance degree to run a financially healthy company—you need a simple system you’ll actually use. This guide distills my advised to small business owners looking to create a strong financial foundations for their business. In this post I share, practical steps any small business can implement to create clarity, steady cash, and confident decision‑making.
Choose the right entity for your stage
LLC is a simple, flexible starting point for most owners. You can elect S‑corp taxation later if/when it benefits you.
S‑corp can reduce self‑employment taxes once you’re consistently paying a reasonable W‑2 salary and still have profits. It adds payroll, an extra tax return, and compliance.
C‑corp fits companies planning to scale with outside/international investment.
There’s no one “right” entity—there’s the right one for your stage and goals. Use the entity that fits best with your long term business goals.
Set up clean banking and bookkeeping on day one
Separate business banking and credit cards—don’t mix personal and business.
Use bookkeeping software and reconcile monthly (QuickBooks is standard; Xero/Wave can work too).
Clean books are essential for loans, lines of credit, and faster decisions.
I’ve had countless clients with messy books (that we’ve had to get fixed a high cost!). The best thing you can do when starting an entity is kept your finances in order. It doesn’t need to be fancy, there will be errors, but it’s essential not only to making decisions, but paying taxes correctly, growing the company, and peace of mind.
Know your personal financial floor—and pay yourself on purpose
Calculate your minimum monthly take‑home, including taxes and benefits.
For pass‑through entities, set aside taxes as you go (many save ~30–33% of distributions and true‑up with a CPA).
Price so the business reliably funds your owner pay.
I’m working on a 4 part series all around owner pay, read Part 1 today and see where you can start your business off on the right foot by paying yourself correctly from the start.
Build a simple 12–18 month plan and revisit quarterly
List products/services with price × volume targets.
Map major expenses/investments (people, tools, equipment) and timing.
Spread targets by quarter; refresh the plan every 90 days.
Make cash flow!
Grab my blogs on cash flow:
1099 vs W‑2: classify correctly
If you dictate how/when work is done, provide equipment, and they work mainly for you, they likely belong on W‑2.
Misclassification risk (especially in CA/NY) can trigger back taxes/penalties.
W‑2 isn’t always more expensive—hourly rates often adjust because you cover payroll taxes/benefits. Run the math.
Level up your literacy: the three statements
Profit & Loss: revenue, COGS, operating expenses, and margins (gross, EBITDA, net).
Balance Sheet: assets, liabilities, equity at a point in time. Watch working capital and ensure cash ties to bank statements.
Cash Flow Statement: operating/investing/financing cash and ending cash balance.
Make this a monthly habit—clean inputs lead to smarter decisions.
Run a simple monthly finance rhythm
Weekly (15–30 min): update cash forecast, check AR/AP, compare new commitments to capacity.
Monthly (60–90 min): close the books; review P&L, Balance Sheet, Cash Flow; update KPIs; choose 1–2 actions (price, scope, collect, cut).
Quarterly: tune pricing/margins, adjust offer mix/inventory, update the 12‑month plan.
Annually: deep planning (targets, investments, owner pay, reserves).
Track the right 3–5 KPIs (not 35)
Pick metrics that drive action and revisit monthly.
Examples:
Services: gross margin %, utilization, pipeline coverage (next 90 days), win rate, AR days.
Product/Manufacturing/Distribution: gross margin %, inventory turns, on‑time/fill rate, scrap/returns, working capital.
SaaS/Tech: MRR, churn/retention, CAC, LTV, gross margin.
Resources to help you on your journey to success:
Download the free Financial Accountability Checklist and Working Capital guide: https://financefightclub.com/freebies
Plan your next 12 months using our one‑page planner: 2026 annual planning guide
Want help with pricing, cash flow, and KPI discipline? Book a consult: https://calendly.com/financefightclub/20 or learn more: https://financefightclub.com/cfo
Q&A:
Here’s a few quick FAQs based on a presentation I did earlier this year for new to business owners:
Q: What’s the best entity to start with?
A: An LLC is a simple, flexible start for most. Consider S‑corp election only when you have consistent profits and can pay a reasonable W‑2 salary; it adds payroll and an extra tax return. C‑corp is better for larger scale or outside investment.
Q: When does an S‑corp actually save me money?
A: When you’re consistently paying yourself meaningful W‑2 comp and still have profit left over. Many owners see value around $80k+ in owner pay; clearer benefits often appear closer to ~$150k, given added admin costs. Not ideal if cash flow is lumpy.
Q: How much should I set aside for taxes?
A: For LLC/sole prop pass‑throughs, a simple rule is to save ~33% of profit distributions in a separate tax account and true‑up with your CPA (or pay quarterlies). Adjust to your bracket and state.
Q: What should my bookkeeping and banking look like?
A: Separate business bank/credit card, use software (QuickBooks, Xero, Wave), and reconcile monthly. A solid bookkeeper categorizes, reconciles to bank statements, and sends monthly reports; advisory is a separate role.
Q: How big should my cash reserve be?
A: Target at least 3 months of operating expenses (in addition to a separate tax reserve). If you carry payroll/inventory risk, lean to 3–6 months. Check out my cash flow management triangle blog to understand how I help our clients manage cash.