Business Owner's Money Checklist: 10 First-Year Steps

Your first year in business is when you set up the money systems you'll run on for the next ten. Get these 10 in place and you'll know what's yours to spend, what's for taxes, and what you can safely pay yourself.

Quick Answer: In your first year, open separate business accounts, choose your entity and get an EIN, set up simple bookkeeping, hold back 25 to 30% of profit for taxes, pay quarterly estimates, put yourself on a fixed paycheck, build business and personal cash cushions, insure the big risks, and open a retirement account.

1. Open a separate business bank account and card

Business money and personal money should never share an account. Mixing them makes your books a mess, turns tax time into a forensic project, and if you have an LLC, it can weaken the liability protection you formed it for. The SBA recommends opening a business bank account as soon as you're ready to accept or spend money.

Keep it simple: one business checking account for income and expenses, plus one business credit card for purchases. Every dollar of revenue lands in the business account first. Every dollar you take for yourself moves out as a deliberate transfer, not a swipe of the wrong card.

2. Choose your entity (and get an EIN)

Most owners start as a sole proprietor or a single-member LLC, and both are taxed the same way by default: profit flows onto your personal return. The difference is legal, not tax. An LLC separates your personal assets from business debts and lawsuits, but it costs money to keep. In California, for example, an LLC owes an $800 minimum franchise tax every year.

Later, once profit is steady, you can elect to have your LLC taxed as an S corporation. That can lower self-employment tax, but it adds payroll and a separate tax return, so it's a conversation to have with a CPA, not a default. The IRS deadline is tight: Form 2553 is due no more than 2 months and 15 days after the start of the tax year you want it to apply to. The SBA's guide to business structures compares every option side by side, and a business attorney or CPA can tell you which one fits your situation.

Whatever you choose, get an EIN. It's free from the IRS and takes minutes online, and it keeps your Social Security number off invoices and W-9s. Skip any site that charges you for one.

3. Set up simple bookkeeping

You need a system that tells you, at any point, how much the business made and spent. That can be bookkeeping software connected to your business account, or a bookkeeper if you'd rather not touch it. The IRS generally expects you to keep records supporting your return for at least three years, so pick something that stores receipts too.

The habit matters more than the tool. Block 30 minutes once a month to categorize transactions and look at one number: profit. Every other item on this list runs on that number.

4. Set aside a tax reserve

Nobody withholds taxes from a business owner's income, so you have to do it yourself. Open a separate savings account called "Tax Reserve" and move 25 to 30% of every profit dollar into it as soon as it arrives.

Why so much? On top of income tax, you owe self-employment tax of 15.3% for Social Security and Medicare, the half an employer would normally cover. (If you're comparing this to a salaried job, our post on whether W-2 or 1099 work pays more runs the numbers.) Let's say you clear $10,000 in profit this month. $3,000 goes to the tax reserve before you think about spending a dime. If your state has a high income tax, lean toward the top of that range.

5. Pay quarterly estimated taxes

The IRS expects you to pay as you earn, not once in April. If you expect to owe $1,000 or more for the year, you generally need to make estimated tax payments four times a year: mid-April, mid-June, mid-September, and mid-January of the following year.

The easiest way to avoid underpayment penalties in a year with uneven income is the safe harbor: pay at least 100% of last year's total tax (110% if last year's adjusted gross income was over $150,000), split across the four deadlines. Your tax reserve from step 4 is where those payments come from, so they never touch your operating cash.

6. Decide what to pay yourself

This is the big one, and the answer is a fixed paycheck you can hit even in your slowest month. Taking whatever's left at the end of the month feels flexible, but it makes your personal budget impossible to plan and drains the business in good months.

Here's a simple way to find your number. Let's say over the last three months your business averaged $9,000 a month in profit. Set aside 30% for taxes ($2,700), leaving $6,300. Keep about $1,000 a month in the business to build its cash cushion, and you can pay yourself a steady $5,300. Round down to $5,000 and transfer it to your personal checking on the same dates every month. In a great month, the extra stays in the business. In a slow month, the cushion covers your paycheck.

At Planned, we recommend revisiting the number every quarter, not every month, so one big invoice doesn't send it soaring. If you've elected S corporation status, part of that pay has to run through payroll as a salary, and the IRS requires it to be reasonable compensation for the work you do.

Want help working out your number? Book a free 15-minute call.

7. Build a business cash cushion

Your business needs its own emergency fund, separate from yours. Aim for one to three months of operating expenses sitting in business savings. If the business spends $4,000 a month on software, contractors, rent and the like, that's a cushion of $4,000 to $12,000.

This cushion is what lets you keep paying yourself the same amount when a client pays late or a season runs slow. Build it with the money you hold back in step 6 before you raise your own pay.

8. Build a bigger personal emergency fund

Owners need a larger personal emergency fund than employees do, because your income can drop without warning and there's no unemployment check if the business has a bad quarter. A common target for salaried workers is three to six months of essential expenses. For owners, aim for the full six.

If your rent, groceries, insurance and minimum payments come to $4,500 a month, your target is $27,000. That sounds like a lot in year one, so build it in stages after your tax reserve and business cushion are funded. Our guide to how much emergency fund you actually need walks through setting your own number.

9. Insure the risks that could end the business

Insurance is how you make sure one lawsuit, accident or illness doesn't wipe out what you've built. The SBA's insurance guide covers the main types; the ones most first-year owners look at are:

• General liability: covers injury or property damage claims from clients and the public.
• Professional liability (errors and omissions): covers claims that your work or advice caused someone a loss. Important for consultants and service businesses.
• Health insurance: if you left an employer plan, you need your own, either through the marketplace or a spouse's plan.
• Disability insurance: you are the business's income. If you can't work for six months, this is what pays you.

A licensed insurance agent can tell you which ones your industry, clients, or state actually require.

10. Open a retirement account

Without an employer plan, nobody is going to set up retirement savings for you. The IRS lists several retirement plans built for self-employed people, most commonly a SEP IRA or a Solo 401(k). A SEP IRA, for example, allows contributions of up to 25% of compensation, which works out to roughly 20% of net profit for a sole proprietor.

You don't have to max anything out in year one. The win is opening the account and setting up a small automatic contribution, even $200 a month, so the habit exists before the income grows. For how these accounts fit together, see our guide to tax-advantaged accounts.

Frequently Asked Questions

What percentage of business income should I set aside for taxes?

Most owners set aside 25 to 30% of profit, not revenue. That covers federal income tax plus the 15.3% self-employment tax for Social Security and Medicare. If you live in a state with a high income tax or your profit is well into six figures, lean toward 30% or more. A CPA can refine the number after your first full year.

Should I pay myself a salary or take owner's draws?

It depends on your entity. Sole proprietors and single-member LLCs pay themselves with owner's draws, which are simple transfers from the business account. If you've elected S corporation status, you must pay yourself a reasonable salary through payroll and can take additional profit as distributions. Either way, a fixed amount on a set schedule beats taking whatever is left.

Do I need an LLC in my first year?

Not always. A sole proprietorship costs nothing to set up and is taxed the same way as a single-member LLC. An LLC is worth it when you have real liability exposure, such as clients who could sue, employees, or business debt. Weigh the protection against your state's annual fees, which run $800 a year in California.

When should I hire a CPA as a new business owner?

Bring one in before your first quarterly estimate is due or before you consider an S corporation election, whichever comes first. A CPA can confirm your tax reserve percentage, set up your estimated payments, and tell you whether an entity change would save more than it costs. Many owners get the most value from a one-time setup session in year one.

The bottom line

You don't need all 10 done this month. Start with separate accounts and a tax reserve, since those two prevent the most expensive first-year mistakes, then work down the list over the year.

Want help working out your number? Book a free 15-minute call.

This article is general education, not personalized legal, tax, insurance, or investment advice. Rules vary by state and change over time, so check with a CPA, attorney, or licensed insurance agent before acting on anything here for your own business.