Whether you make $100 or $100,000 a year on your blog (or, plot twist, are losing money), understanding your finances is incredibly important. Boring, yes. But nonetheless, IMPORTANT.
As I totally understand this topic may be a dry one, I'm here to keep it as quick and to-the-point as possible. Below I'm stepping you through the three main stops you will make over the course of your business journey.
Stop 1 - The Bookkeeper
This should be the first step in your business journey. The good news is you can do all of this yourself (with the proper tools)! Bookkeeping is simply a fancy word for organizing all of your transactions - the money you spend to operate your business (expenses) and the money you make (revenue). This is best done in a spreadsheet (check out our shop page for our accounting template for bloggers) or with accounting software (I recommend Quickbooks Online as it is SO user friendly and affordable). At the end of the year, if you've kept up with your monthly bookkeeping, you should have a clean and accurate Profit & Loss Statement and Balance Sheet.
We have developed an all encompassing spreadsheet that will help you seamlessly track your blog's finances. It's easy to use and automatically generates a Profit and Loss Statement and Balance Sheet for you. I highly recommend it (obvi I'm a little biased) if you're looking to do your bookkeeping yourself.
What is a Profit & Loss Statement?
Simply put, a Profit and Loss Statement (also known as a P&L) is a very brief summary of how your business performed financially for a specific time period. For the most part, you will want to look at this statement on a monthly, quarterly, or annual basis. Here is an example of a simple P&L for a typical food blog:
This is what a Profit and Loss Statement may look like for a food blog
What do I do with my Profit and Loss Statement?
Great question! You should use this statement as a guide when growing your business. The three main things you should pay attention to are:
- Your Revenue - how is your revenue performing in relation to prior months/quarters/years? If you have multiple revenue streams (ie. numerous ways in which you make money), which one is bringing in the most? Reflect back on how much time a certain task took you. Did it take FOREVER to do the photo shoot for a freelance photography gig? Now, look at the amount of money it brought in relative to your other revenue sources and decide if it is worth your time moving forward.
- Your Expenses - how are your expenses racking up compared to your revenue? Are you spending more than you are bringing in (which is a-okay and expected in the beginning)? Take a look at each of your expense buckets and see if there is any one in particular that sticks out to you as too high or one that you could eliminate all together. You need to spend money to make money but the key here is to analyze the ways in which you are spending money and decide if that is still the best way to operate as you grow your business.
- Your Net Income - does your net income meet your expectations? Many times, all you are thinking about all month is the revenue coming in. The net income is a more accurate depiction of how your business is operating - one number to summarize money in and money out. If your business is still young, it is very common for this number to be negative which is totally fine. Eventually you will want to work towards pushing this number up to be operating at a profit.
I recommend taking a glance at this statement every month if you can, and, if not then at least every quarter.
What is a Balance Sheet?
A balance sheet is a financial statement used to show the assets and liabilities and equity of a business at a point in time. This statement should be simple and straight forward for a food blog. The typical accounts for a food blog would be:
- Assets - These items are valuable resources owned by your business
- Business Checking Account - this is the cash you have in the bank used to operate your business
- Liabilities - These are obligations that your business owes
- Business Credit Card - this is the amount due on your credit card at a point in time
- Equity - This is your stake in the business
- Owner Draw - the amount of money you take out of your business that is not an expense (ie. personal expenses, tax payments, amount paid to yourself)
- Owner Investment - this is money you, as an individual, have invested in your business. In other words, personal dollars that you've used for business expenses
- Net Income - the amount of profit your business has earned (this number comes straight off of your P&L discussed above).
- Retained Earnings - this is the accumulation of net income over time. If this is the third year you have operated your food blog, retained earnings will the sum of your net income from years 1 and 2.
This is what a typical Food Blog's Balance Sheet may look like
A food blog's balance sheet is not as involved as its Profit & Loss statement. Therefore, I recommend taking a look at your Balance Sheet once or twice a year, mainly to keep track of how much you are taking out of the business in the form of owner draws.
At the end of the year, you will use your Profit and Loss Statement and Balance Sheet to file your taxes OR send it to your Tax Accountant to prepare your taxes for you. This brings us to the next stop in your business journey.
Stop 2 - The Tax Accountant
The next stop in our business journey is where we meet good ole' Uncle Sam - filing taxes. This is probably what most food bloggers find the most daunting step. Like bookkeeping, you can totally do this yourself. However, as your business grows you may want to consult with a tax preparer who knows the industry and can likely help you find ways to save some money!
What You Need to File Taxes
Depending upon how your business is structured (sole proprietorship, LLC, S-Corp, etc.), you or your tax accountant will need the following:
- Profit & Loss Statement
- Balance Sheet
- Any 1099s you received and/or distributed
- Your W-2
Do the first 2 items look familiar? This is because both your Profit & Loss Statement and Balance Sheet should already be prepared if you kept track of your bookkeeping! This is why good bookkeeping is crucial. If your numbers are wrong, your taxes will be wrong.
What are 1099s
Simply put, a 1099 is an IRS form used to report any revenue you received throughout the year other than your salary (which is reported on your W-2). The company who paid you is the party responsible for filing this form with the IRS and distributing it to you by January 31st. Let's use an example common to most food bloggers:
You (the food blogger) sign a contract with YUM Company for a sponsored recipe post on your blog (YAY!). They pay you $1,000 upon completion of your post. YUM Company is now required to file a 1099 with the IRS reporting that they paid you money. They will then send this form to you so you can submit it with your tax return to confirm that you earned money from YUM Company. Sometimes you will need to reach out to the company to request this form if they don't automatically send it to you.
What is a W-2
This is an IRS form used to report wages paid to an employee. If you are an employee of a company, you will receive a W-2 reporting your salary along with other details needed to file taxes like withholdings.
Something you may not know is that as your business grows you can pay yourself a salary through your food blogging business and receive a W-2 yourself! This is a very common tax strategy used to reduce your tax liability. Paying yourself a salary can also help in "automating" a portion of your estimated tax payments. The cost involved in doing this is just getting set up with a payroll processor. I recommend Gusto for it's automation feature and its user-friendly-ness. If your food blog is your full-time job or you rely on your food blog's income for your own finances I highly recommend getting set up to pay yourself a "salary".
Depending upon your business structure and your estimated net income, you may want to consider making estimated tax payments each quarter. I recommend speaking with a tax accountant to discuss if this is something you need to do. Tax returns are due on April 15th each year. If you plan to prepare these yourself, I recommend TurboTax as it steps you through each section of your tax return. Unless you live in one of those fun states (like Florida) with no income tax, you will be preparing both a federal income tax return (this goes to the IRS) and a state income tax return (this goes to your state's revenue services).
After you've paid your taxes you can finally exhale a sigh of relief and put a year of food blogging behind you (YAY!). As your business grows and you become more profitable, you may want to begin investing excess cash your business has on hand. This takes us to the last stop in our business journey, the financial planner.
Step 3 - The Financial Planner
This stop may take a couple years to get to for most food bloggers. I recommend coming back to this step once you either (a) have excess money in the bank (this means you have more money in the bank than it takes to operate your business) or (b) you are planning on taking your food blog full-time.
Like the above, you can do your financial planning yourself. However, speaking with a Certified Financial Planner (CFP) might be very beneficial to you depending on your specific needs.
What can a Certified Financial Planner Help me With?
A CFP can help you with many aspects of personal finance. For food bloggers, these are some areas that you may find most helpful:
- Investments - If you have more cash in the bank than you need to run your business, a CFP will be able to help you invest that money and (hopefully) provide a return on that investment. Yay more money!
- Retirement Planning - If you are a full-time food blogger, this area is crucial. This is because you may be used to putting money towards your 401k or IRA through your company if you were an employee. When you become self-employed, this task is now all on you so I highly recommend speaking with a CFP if you are blogging full-time or are hoping to sometime soon in the future.
- Employee Benefits Planning - If you have employees that work for you AND you offer them benefits, a CFP will be able to guide you in this planning process.
If you've made it this far, you should now have an understanding of how your business finances work and who is involved in each process. Every business is unique and may be at a different stage. Depending on where you are with your food blog business, hopefully you got some takeaways from this article and are well on your way to taking control of your business' finances. If you are looking for some help in this area or to outsource your bookkeeping and/or taxes, check out Peach Perfect Financials - my bookkeeping and tax preparation business where I help food bloggers with their accounting needs. If you'd like to get in touch, fill out an inquiry form and let's chat!
Best of luck to you in your business journey!