78 posts tagged with "accounting"

As a Twitch streamer, you've turned your passion for gaming and content creation into a business. But with multiple revenue streams and unique expenses, managing your finances can feel overwhelming. This comprehensive guide will help you navigate the financial side of streaming so you can focus on what you do best: entertaining your community.

Understanding Your Income Streams​

Twitch streamers typically earn money from several sources, each requiring different tracking methods:

Subscriptions: Monthly recurring revenue from viewers who subscribe to your channel at different tiers (Tier 1, 2, or 3). Twitch takes a percentage, and you receive the rest.

Bits and Cheers: Direct support from viewers through Twitch's virtual currency. These micro-transactions add up but can be challenging to track individually.

Ad Revenue: Income generated from pre-roll, mid-roll, and display ads shown during your streams.

Sponsorships and Brand Deals: Potentially your largest income source, these can include product placements, sponsored streams, or affiliate marketing arrangements.

Donations: Direct payments from viewers through platforms like PayPal, Streamlabs, or StreamElements.

Merchandise Sales: Revenue from selling branded products to your community.

The complexity lies not just in having multiple income sources, but in tracking them accurately for tax purposes while understanding which are subject to different tax treatments.

Essential Tax Deductions for Streamers​

Understanding what you can deduct is crucial for minimizing your tax burden. Here are the most common deductions available to Twitch streamers:

Equipment and Technology​

You can typically deduct purchases related to your streaming setup, including computers, monitors, webcams, microphones, lighting equipment, green screens, capture cards, consoles, and controllers. For expensive equipment, you may need to depreciate the cost over several years rather than deducting it all at once.

Software and Subscriptions​

Streaming software, video editing tools, music licensing subscriptions, game subscriptions, and cloud storage services used for your content creation are all generally deductible.

Home Office Deduction​

If you have a dedicated space in your home used exclusively for streaming, you may qualify for the home office deduction. This can include a portion of your rent or mortgage, utilities, internet, and home insurance. The key word is "exclusive"—the space must be used regularly and solely for your streaming business.

Internet and Phone​

A portion of your internet and phone bills can be deducted based on the percentage used for business purposes. Since streaming requires high-speed internet, this can be a significant deduction.

Games and Content​

Games purchased specifically for streaming content, in-game purchases used during streams, and access to game libraries can all be deductible expenses.

Travel and Events​

Attending gaming conventions, esports tournaments, or industry events? Travel expenses including transportation, lodging, and a portion of meals may be deductible when the primary purpose is business-related.

Marketing and Advertising​

Money spent promoting your channel through social media ads, channel art commissions, emote designs, website hosting, and promotional giveaways can typically be written off.

Setting Up Your Financial System​

Proper bookkeeping starts with good organization. Here's how to set yourself up for success:

Separate Your Business and Personal Finances​

Open a dedicated bank account and credit card for your streaming business. This separation makes tracking income and expenses much simpler and provides clear documentation if you're ever audited.

Choose Your Accounting Method​

Cash basis accounting (recording income when received and expenses when paid) is simpler and works well for most streamers. Accrual accounting (recording when earned/incurred) may be required as you grow larger.

Track Everything in Real-Time​

Don't wait until tax season to organize your finances. Use spreadsheets or accounting software to record transactions as they happen. Categorize each income source and expense properly from the start.

Save Your Receipts​

Keep digital or physical copies of all receipts, invoices, and financial documents. A simple smartphone photo of each receipt stored in organized folders can save you hours of frustration later.

Managing Quarterly Estimated Taxes​

As a self-employed streamer, you're responsible for paying estimated quarterly taxes. The IRS expects you to pay taxes on your income throughout the year, not just at tax time.

Calculate approximately 25-30% of your net streaming income (after expenses) and set it aside for taxes. This covers both income tax and self-employment tax, which accounts for Social Security and Medicare.

Quarterly tax deadlines are typically April 15, June 15, September 15, and January 15 of the following year. Missing these deadlines can result in penalties and interest charges.

Common Financial Mistakes Streamers Make​

Mixing personal and business expenses: This creates a bookkeeping nightmare and raises red flags during audits.

Not tracking small expenses: Those $3 game purchases and$10 software subscriptions add up to significant deductions over a year.

Forgetting about state taxes: Don't overlook state income taxes and sales tax obligations, especially if you sell merchandise.

Underestimating self-employment tax: Many new streamers are shocked by the 15.3% self-employment tax on top of regular income tax.

Poor documentation: Without receipts and proper records, you can't prove your deductions if questioned.

Building Financial Stability as a Streamer​

Streaming income can be unpredictable. One month might bring a huge sponsorship deal, while the next could be lean. Build financial resilience with these strategies:

Create an emergency fund: Aim for 3-6 months of living expenses saved to weather slow periods or equipment failures.

Diversify your income: Don't rely solely on one platform or revenue source. Expand to YouTube, TikTok, Patreon, or other platforms.

Plan for irregular income: Budget based on your lowest-earning months, and treat higher-earning months as opportunities to save.

Invest in growth strategically: Upgrading equipment is important, but balance it against your current income and savings.

Working with Financial Professionals​

As your streaming business grows, consider working with professionals who understand content creator finances:

A bookkeeper can handle day-to-day transaction recording and categorization, saving you hours each month. A CPA or tax professional familiar with content creators can optimize your tax strategy, ensure compliance, and help with complex situations like international income or forming an LLC or S-corp.

The cost of professional help is tax-deductible and can often pay for itself through tax savings and peace of mind.

Looking Ahead: Scaling Your Financial Management​

As your channel grows, your financial needs will evolve. You might consider forming an LLC for liability protection, electing S-corp status to potentially reduce self-employment taxes, hiring contractors or editors, or setting up retirement accounts like a Solo 401(k) or SEP IRA.

Final Thoughts​

Managing finances as a Twitch streamer doesn't have to be intimidating. Start with the basics: separate accounts, consistent tracking, and understanding your deductions. As your channel grows, scale your financial systems accordingly and don't hesitate to invest in professional help.

Remember, every dollar you spend on proper financial management is a dollar invested in the long-term success and sustainability of your streaming career. Your future self will thank you for the organized records and smart financial decisions you make today.

Disclaimer: This article provides general information and should not be considered professional tax or financial advice. Tax laws vary by jurisdiction and individual circumstances. Always consult with a qualified tax professional or accountant for guidance specific to your situation.

Running a travel agency comes with unique financial challenges that set it apart from most other businesses. From managing advance payments to navigating international tax regulations, travel agency owners need a solid understanding of their finances to thrive in this dynamic industry.

Understanding Travel Agency Accounting Basics​

Travel agencies operate differently from traditional retail or service businesses, which creates several unique accounting considerations that owners must master.

Revenue Recognition Complexities​

Unlike businesses that recognize revenue at the point of sale, travel agencies often face delayed revenue recognition. When a client books a trip six months in advance, you receive the payment immediately, but the service isn't rendered until the actual travel date. This creates what accountants call "unearned revenue" or "deferred revenue" on your balance sheet.

This timing difference matters significantly for tax purposes and understanding your true financial position. Many travel agency owners mistakenly view all incoming payments as immediate profit, leading to cash flow problems when taxes come due or when refunds are necessary.

Third-Party Transaction Management​

Travel agencies frequently act as intermediaries, selling packages and services from airlines, hotels, tour operators, and other vendors. This creates accounting complexity because you must clearly distinguish between:

• Gross receipts (the full amount customers pay)
• Net revenue (your actual commission or markup)
• Pass-through expenses (money that flows to vendors)

Proper categorization ensures accurate profit margins and prevents overstated revenue figures that could lead to tax complications or misleading financial reports.

Five Critical Financial Challenges for Travel Agencies​

1. Fluctuating Revenue Streams​

The travel industry experiences dramatic seasonal variations. Summer and holiday seasons typically bring surges in bookings, while shoulder seasons can see revenues drop significantly. This volatility makes cash flow management challenging and requires careful planning.

Best Practice: Build cash reserves during peak seasons to cover operating expenses during slower months. Consider offering off-season promotions to smooth out revenue fluctuations.

2. Complex Commission Structures​

Every booking may involve different commission rates depending on the vendor, service type, and negotiated agreements. Airlines might pay 5% commission, hotels 10%, and tour packages 15%. Tracking these varied rates accurately is essential for understanding profitability.

Best Practice: Implement a robust tracking system that automatically calculates commissions based on vendor agreements. Regular reconciliation with vendor statements helps catch discrepancies early.

3. Multicurrency Transactions​

International travel inherently involves multiple currencies. You might receive payment in US dollars, pay a European hotel in euros, and earn commission in British pounds. Exchange rate fluctuations can significantly impact your bottom line.

Best Practice: Open foreign currency accounts for major currencies you work with regularly. This reduces exchange fees and helps hedge against currency volatility.

4. Multiple Tax Jurisdictions​

Travel agencies often must navigate complex tax situations across different states, countries, and municipalities. Value-added tax (VAT), goods and services tax (GST), and tourism taxes vary widely by location.

Best Practice: Work with tax professionals familiar with travel industry regulations. Document the tax jurisdiction for each transaction carefully to ensure compliance.

5. Advance Deposit Management​

Clients typically pay deposits months before travel, which must be carefully managed to avoid cash flow problems. These funds don't belong to you until the service is rendered, yet they sit in your accounts.

Best Practice: Maintain separate accounts for client deposits or use clear accounting categories. This prevents accidentally spending money that may need to be refunded.

Essential Financial Reports for Travel Agencies​

Cash Flow Statements​

Given the advance payment nature of travel bookings, cash flow statements become even more critical than profit and loss statements. A travel agency can appear profitable on paper while facing severe cash shortages.

Monitor your cash flow weekly during peak booking seasons to ensure you maintain adequate liquidity.

Accounts Receivable Aging​

Track outstanding commissions from vendors and payments due from corporate clients. Aging reports help identify slow-paying partners and potential bad debt before it becomes problematic.

Commission Analysis Reports​

Break down your revenue by commission source to identify your most profitable vendor relationships. This analysis guides decisions about which partnerships to nurture and which services to promote.

Booking Pipeline Reports​

Understanding your future committed bookings helps forecast revenue and plan for upcoming cash needs. This forward-looking approach is essential for travel agencies.

Tax Considerations Unique to Travel Agencies​

Deductible Expenses​

Travel agencies can deduct various business expenses, including:

• Familiarization trips (FAM trips) to destinations you sell
• Industry conference and training costs
• Marketing and advertising expenses
• Professional membership dues (ASTA, CLIA, etc.)
• Home office expenses for independent agents
• Errors and omissions insurance

Keep detailed documentation of all business travel, including how it relates to your agency's operations.

Tax Credits and Incentives​

Some regions offer tax credits for small businesses, hiring new employees, or investing in technology. Research local incentives that might apply to your travel agency.

Sales Tax Complexities​

Some states tax travel services while others don't. Understandin

Running a successful real estate business requires more than just closing deals and finding perfect properties for your clients. Behind every successful realtor is a solid financial management system that keeps income organized, expenses tracked, and taxes under control. If you're a real estate professional struggling to keep your books in order, you're not alone—and this guide is here to help.

The Unique Financial Challenges Realtors Face​

Real estate professionals deal with financial complexities that many other small business owners don't encounter. Understanding these challenges is the first step toward managing them effectively.

Income Fluctuations and Cash Flow​

Unlike salaried employees, realtors experience dramatic income swings throughout the year. You might close three deals in one month and then go weeks without a commission check. This irregularity makes budgeting and cash flow management particularly challenging. You need to plan for lean months while maximizing the benefits of high-earning periods.

The seasonal nature of real estate compounds this issue. Spring and summer typically bring more activity, while winter months can be significantly slower in many markets. This means you must be strategic about saving during peak seasons to cover both business expenses and personal needs during quieter times.

Commission-Based Income Tracking​

When you work on commission, every transaction involves multiple parties and potential splits. You might be splitting commissions with your brokerage, other agents, or team members. Keeping accurate records of who gets paid what—and when—is essential for both tax purposes and business planning.

Additionally, commission structures can vary from deal to deal. Some transactions might involve referral fees, others might have different split arrangements, and you need to track all of these accurately to understand your true earnings.

Business Expense Management​

Real estate professionals incur numerous tax-deductible expenses, but tracking them all requires diligence. Common deductible expenses include:

Marketing and Advertising: Professional photography, virtual tours, listing ads, social media campaigns, direct mail, and your website all add up quickly. These costs are fully deductible as legitimate business expenses.

Mileage and Transportation: You're constantly driving to showings, open houses, inspections, and client meetings. The IRS allows you to deduct business mileage at a standard rate (currently 67 cents per mile for 2025), which can result in substantial tax savings if you track your trips accurately.

Continuing Education: Real estate licenses require ongoing education. Course fees, exam costs, and related materials are all deductible business expenses.

Professional Fees and Memberships: MLS fees, realtor association dues, broker fees, and professional liability insurance all qualify as deductible expenses.

Home Office Deduction: If you maintain a dedicated space in your home exclusively for business use, you may qualify for the home office deduction, which covers a portion of your rent or mortgage, utilities, and maintenance costs.

Staging and Property Preparation: Costs associated with staging properties for sale can often be deducted as business expenses, though this depends on your specific arrangement with clients.

Tax Complexity and Compliance​

As a self-employed real estate professional, you're responsible for paying quarterly estimated taxes. Missing these payments can result in penalties and interest charges. You'll also need to manage your self-employment tax, which covers Social Security and Medicare contributions that would typically be split with an employer.

Form 1099-NEC reporting adds another layer of complexity. You'll receive 1099s from your brokerage, and if you pay contractors (like photographers or virtual assistants), you'll need to issue 1099s to them as well.

The Real Estate Settlement Procedures Act (RESPA) requires compliance with specific financial practices to prevent fraud and ensure transparency in real estate transactions. While RESPA primarily governs settlement services, realtors should understand how it affects commission payments and disclosure requirements.

Essential Financial Management Practices​

Implementing strong financial habits now will save you stress and money in the long run.

Separate Personal and Business Finances​

Open a dedicated business checking account and use it exclusively for real estate-related transactions. This separation simplifies bookkeeping, makes tax preparation easier, and provides legal protection if your business is ever audited or involved in litigation.

Consider getting a business credit card for business expenses. This creates a clear paper trail and can provide additional benefits like rewards points on your business spending.

Implement a Reliable Tracking System​

Choose a method for tracking income and expenses that you'll actually use consistently. Options range from simple spreadsheets to comprehensive accounting software. The key is consistency—track every transaction, no matter how small.

For mileage tracking, use a dedicated app that leverages GPS to automatically log your trips. Manual mileage logs are time-consuming and easy to forget, but apps make the process seamless.

Maintain Detailed Records​

Keep receipts, invoices, and documentation for every business expense. The IRS requires substantiation for deductions, and good records protect you in case of an audit. Store documents electronically with cloud backup to prevent loss.

For larger purchases or unclear expense categories, make notes about the business purpose. This context helps later when you're preparing taxes or reviewing your finances.

Set Aside Money for Taxes​

A common mistake among new real estate professionals is spending all their commission checks without setting aside money for taxes. As a general rule, reserve 25-30% of your income for tax obligations, including both income tax and self-employment tax.

Transfer this money immediately into a separate savings account designated for taxes. This way, you won't be tempted to spend it, and you'll be prepared when quarterly estimated tax payments are due.

Pay Quarterly Estimated Taxes​

The IRS requires self-employed individuals to make quarterly estimated tax payments if they expect to owe more than $1,000 in taxes for the year. These payments are due April 15, June 15, September 15, and January 15.

Calculate your estimated taxes based on your expected annual income or use the prior year's tax liability as a safe harbor. Missing these payments results in penalties, so set reminders well in advance of each deadline.

Review Your Finances Regularly​

Schedule monthly financial reviews to assess your income, expenses, and progress toward your goals. This regular attention helps you spot problems early, identify spending patterns, and make informed business decisions.

During these reviews, reconcile your bank statements, categorize any unclear transactions, and ensure all income has been properly recorded.

Maximizing Tax Deductions​

Understanding available tax benefits can significantly reduce your tax burden.

The Qualified Business Income Deduction​

Many self-employed real estate professionals qualify for the Qualified Business Income (QBI) deduction, which allows you to deduct up to 20% of your qualified business income. This deduction can result in substantial tax savings, but it comes with income limitations and complex rules.

Consult with a tax professional to determine your eligibility and ensure you're calculating the deduction correctly.

Real Estate Professional Status​

If you meet certain IRS criteria for time spent and participation in real estate activities, you may qualify as a "real estate professional" for tax purposes. This designation can provide significant tax advantages, particularly related to passive activity loss limitations.

The requirements are strict: you must spend more than 750 hours per year in real estate activities and more than half of your working time in real estate. Detailed time logs are essential to substantiate this status.

Retirement Contributions​

As a self-employed individual, you can take advantage of retirement plans designed for small business owners, such as SEP IRAs or Solo 401(k)s. These plans allow you to contribute significantly more than traditional IRAs while reducing your taxable income.

A SEP IRA, for example, allows contributions of up to 25% of your net self-employment income, with a maximum of $69,000 for 2025. These contributions are tax-deductible and grow tax-deferred.

Common Financial Mistakes to Avoid​

Learn from others' mistakes to keep your real estate business financially healthy.

Mixing Personal and Business Expenses​

Using your personal account for business expenses (or vice versa) creates bookkeeping nightmares and can raise red flags during an audit. Maintain strict separation between personal and business finances.

Neglecting to Track Small Expenses​

Those $5 parking fees and$10 meals add up over the course of a year. Small expenses are easy to overlook, but collectively they represent significant deductions. Track everything.

Waiting Until Tax Season​

Don't wait until March or April to organize your financial records. By then, you'll have forgotten important details and will scramble to locate receipts. Stay current with your bookkeeping throughout the year.

Underestimating Tax Obligations​

Many realtors underestimate how much they'll owe in taxes, particularly in their first profitable year. This can lead to unpleasant surprises and financial stress. Always err on the side of setting aside more for taxes rather than less.

Not Seeking Professional Help​

While you can manage basic bookkeeping yourself, tax laws for real estate professionals are complex and change frequently. The cost of hiring a qualified tax professional is typically offset by the additional deductions they find and the penalties they help you avoid.

Planning for Long-Term Success​

Financial management isn't just about surviving tax season—it's about building a sustainable, profitable business.

Build an Emergency Fund​

Aim to save 3-6 months of business and personal expenses in an easily accessible emergency fund. This cushion protects you during slow periods and gives you peace of mind to focus on growing your business rather than stressing about money.

Invest in Your Business Growth​

Set aside a portion of your income for business development. This might include upgrading your marketing materials, investing in better technology, taking advanced training courses, or hiring support staff. Strategic investments in your business can accelerate your growth and income potential.

Monitor Key Performance Indicators​

Track metrics that matter to your business success, such as average commission per transaction, conversion rates, client acquisition costs, and return on marketing investments. These numbers tell the story of your business health and guide strategic decisions.

Plan for Retirement​

Without an employer matching 401(k) contributions, you're solely responsible for your retirement planning. Make retirement savings a priority by automating contributions to your retirement account. Your future self will thank you.

Conclusion​

Financial management might not be the most exciting part of being a realtor, but it's absolutely essential for long-term success. By implementing strong systems, tracking your income and expenses diligently, staying compliant with tax obligations, and planning strategically, you'll build a solid financial foundation for your real estate business.

Remember that the time you invest in financial management pays dividends in reduced stress, lower tax bills, and better business decisions. Whether you handle your finances yourself or work with professionals, make financial management a priority in your real estate practice.

The most successful realtors aren't just great at finding properties—they're also skilled at managing the business side of real estate. Start implementing these practices today, and you'll be well on your way to building a thriving, financially healthy real estate business.

Running a successful plumbing business requires more than just technical expertise and quality service. Sound financial management is the foundation that supports growth, profitability, and long-term sustainability. Whether you're a solo plumber or managing a team of technicians, understanding your finances can make the difference between thriving and merely surviving.

The Unique Financial Challenges Plumbers Face​

Plumbing businesses encounter specific financial complexities that differ from other industries. Understanding these challenges is the first step toward managing them effectively.

Tracking Variable Costs

Every job involves different materials, labor hours, and overhead. Unlike businesses with predictable inventory costs, plumbers must track expenses for diverse projects ranging from simple repairs to complex installations. Copper piping for one job might cost hundreds while another requires specialized fixtures costing thousands.

Seasonal Income Fluctuations

Many plumbing businesses experience significant seasonal variations. Winter often brings burst pipe emergencies and heating system repairs, while summer may see increased installation work. These fluctuations make cash flow planning essential for maintaining operations year-round.

Managing Subcontractors and Labor

Whether you're issuing 1099 forms to independent contractors or managing W-2 employees, payroll complexity increases with your team size. Each arrangement has different tax implications and record-keeping requirements that must be carefully managed.

Vehicle and Equipment Expenses

Your work truck isn't just transportation—it's a mobile office and warehouse. Properly tracking vehicle expenses, equipment depreciation, and tool purchases is crucial for accurate tax reporting and understanding your true job costs.

Essential Tax Deductions for Plumbers​

Understanding available tax deductions can significantly reduce your tax burden and improve your bottom line. Here are the key deductions plumbing businesses should track:

Tools and Equipment

Every wrench, pipe cutter, drain snake, and specialized tool you purchase for business use is potentially deductible. Keep detailed records of all equipment purchases, including date, cost, and business purpose.

Vehicle Expenses

If you use your vehicle for business purposes, you can deduct either actual expenses (gas, maintenance, repairs, insurance) or use the standard mileage rate. The IRS standard mileage rate for 2025 is 70 cents per mile for business use. Keep a detailed mileage log with dates, destinations, and business purposes.

Work Clothing and Safety Gear

Protective gear specific to plumbing work—steel-toed boots, work gloves, safety glasses, and specialized uniforms—can be deducted. However, regular clothing that could be worn outside of work doesn't qualify.

Business Insurance

Liability insurance, commercial vehicle insurance, and workers' compensation premiums are fully deductible business expenses that also protect your company from potential financial disasters.

Training and Certifications

Continuing education courses, licensing fees, certification renewals, and trade association memberships are all deductible investments in your professional development.

Advertising and Marketing

Website hosting, business cards, vehicle wraps, online advertising, and directory listings are essential marketing expenses that can be fully deducted.

Home Office Deduction

If you maintain a dedicated space in your home exclusively for business administration—handling invoices, scheduling, or bookkeeping—you may qualify for the home office deduction based on square footage.

Equipment Maintenance and Repairs

Costs to maintain, repair, and service your work vehicles and equipment are deductible. This includes everything from oil changes to camera equipment repairs.

Maintaining Comprehensive Financial Records​

Accurate record-keeping isn't just about tax compliance—it's about understanding the true health of your business. Here's what you should track:

Income Records

Document every payment received, whether cash, check, credit card, or electronic transfer. Include customer information, job details, payment method, and date. This creates an audit trail and helps identify your most profitable service areas.

Expense Documentation

Save receipts for all business purchases and categorize them properly. Digital receipt management apps can photograph and organize receipts automatically, reducing paper clutter and the risk of lost documentation.

Asset Tracking

Maintain a detailed list of equipment and vehicles, including purchase dates, costs, and depreciation schedules. This information is essential for insurance purposes and calculating depreciation deductions.

Payroll Records

If you have employees, keep comprehensive payroll records including wages, hours worked, taxes withheld, benefits paid, and any reimbursements. Retain these records for at least four years.

Inventory Management

Track plumbing supplies, parts, and materials. Knowing what you have on hand prevents over-ordering and helps identify shrinkage or theft. Many plumbers use inventory management software that integrates with their accounting system.

Job Costing Information

Track costs by job or customer to understand which services are most profitable. Include direct costs (materials and labor) and allocate appropriate overhead (vehicle expenses, insurance, administrative time).

Mastering Cash Flow Management​

Cash flow—not profit—is what keeps your business running day-to-day. You can be profitable on paper while struggling to pay bills if cash isn't managed properly.

Create a Cash Flow Forecast

Project your income and expenses at least three months ahead. Factor in seasonal variations, planned equipment purchases, and slow payment periods. This helps you anticipate shortfalls and plan accordingly.

Invoice Promptly and Follow Up

Send invoices immediately after completing work. The longer you wait, the longer you'll wait for payment. Implement a consistent follow-up system for overdue invoices—a polite reminder often prompts payment.

Offer Multiple Payment Options

Make it easy for customers to pay by accepting cash, checks, credit cards, and digital payments. While processing fees cut into margins slightly, they significantly increase the likelihood of immediate payment.

Build an Emergency Reserve

Aim to maintain 3-6 months of operating expenses in a reserve account. This buffer protects you during slow periods, enables you to handle unexpected equipment repairs, and provides peace of mind.

Manage Seasonal Fluctuations

During busy seasons, set aside extra profits to cover slower periods. Create a budget based on your lowest-earning months rather than your highest to avoid cash flow problems.

Consider a Line of Credit

A business line of credit provides flexible access to funds for emergencies or opportunities without the commitment of a term loan. Establish this relationship during strong financial periods, not when you desperately need it.

Separating Business and Personal Finances​

One of the most important financial practices for any plumbing business is maintaining clear separation between business and personal finances.

Open a Business Bank Account

Use a dedicated business checking account for all business transactions. This simplifies bookkeeping, provides clear documentation for tax purposes, and protects your personal assets through liability separation.

Get a Business Credit Card

A business credit card helps track expenses automatically and can provide valuable rewards on business purchases. Many offer cash back on gas and vehicle expenses—major categories for plumbers.

Pay Yourself a Reasonable Salary

Rather than pulling money out of the business randomly, establish a regular salary or draw schedule. This makes personal budgeting easier and simplifies tax planning.

Choosing the Right Business Structure​

Your business structure affects taxes, liability protection, and administrative requirements. Common options for plumbing businesses include:

Sole Proprietorship

The simplest structure with minimal paperwork, but offers no liability protection. All business income is reported on your personal tax return via Schedule C.

Limited Liability Company (LLC)

Provides liability protection while maintaining tax flexibility. Can be taxed as a sole proprietorship, partnership, S-corp, or C-corp depending on your situation.

S Corporation

Can reduce self-employment taxes for profitable businesses by splitting income between salary and distributions. Requires more administrative work and formal payroll processing.

Consult with a tax professional or attorney to determine the best structure for your specific situation, as this decision has long-term implications.

Pricing Your Services Profitably​

Understanding your costs is essential for profitable pricing. Many plumbers undercharge because they don't account for all their expenses.

Calculate Your True Hourly Cost

Add up all your annual expenses: vehicle costs, insurance, tools, supplies, marketing, administrative time, licenses, and any other overhead. Divide by your billable hours (typically 1,200-1,500 per year, accounting for non-billable time). This is your minimum hourly cost before profit.

Use Job Costing

Track actual costs for different types of jobs to identify which services are most profitable. You might find that drain cleaning generates better margins than installations, or vice versa.

Build in Profit Margin

After covering costs, add appropriate profit margin. Most successful plumbing businesses target 15-30% net profit margins depending on their market and service mix.

Review and Adjust Regularly

Costs change over time. Review your pricing at least annually and adjust as needed to maintain profitability.

Working with Financial Professionals​

While many aspects of financial management can be handled in-house, professional guidance often pays for itself many times over.

When to Hire a Bookkeeper

Consider professional bookkeeping help when:

• You're spending more than 5 hours per month on bookkeeping
• You're behind on recording transactions
• You're unsure about proper categorization
• Your business has grown beyond basic transactions

The Value of an Accountant

A qualified accountant provides:

• Tax planning strategies specific to your situation
• Guidance on business structure and entity selection
• Help with estimated tax payments to avoid penalties
• Preparation of accurate tax returns that maximize deductions
• Advice on major business decisions with tax implications

Finding the Right Professional

Look for professionals who work with trades businesses and understand the specific challenges of plumbing companies. Ask for referrals from other contractors and interview several candidates before choosing.

Leveraging Technology​

Modern software solutions can dramatically simplify financial management for plumbing businesses.

Accounting Software

Cloud-based platforms like QuickBooks Online, Xero, or FreshBooks connect to your bank accounts, categorize transactions, and generate financial reports automatically. Many integrate with other business tools.

Job Management Systems

Specialized software for service businesses combines scheduling, invoicing, customer management, and accounting in one platform. Popular options include ServiceTitan, Housecall Pro, and Jobber.

Receipt Scanning Apps

Apps like Expensify or Dext photograph receipts and extract key information automatically, eliminating the shoebox full of paper receipts.

Mileage Tracking

Automatic mileage trackers use your smartphone's GPS to log business trips, eliminating manual mileage logs and ensuring you capture every deductible mile.

Planning for Growth and Success​

Strong financial management isn't just about compliance and tax savings—it's about building a business that supports your goals.

Set Clear Financial Goals

Define specific revenue and profit targets. Break annual goals into quarterly and monthly targets to track progress and make timely adjustments.

Monitor Key Metrics

Track important indicators like average job value, customer acquisition cost, profit margin by service type, and cash conversion cycle. These metrics reveal trends and opportunities.

Invest in Your Business

When cash flow allows, invest in marketing, equipment, training, and systems that improve efficiency and service quality. Strategic investments drive future growth.

Plan for Retirement

Self-employed individuals can contribute significantly to tax-advantaged retirement accounts like SEP-IRAs or Solo 401(k)s. Start early and contribute consistently to build long-term wealth.

Conclusion​

Financial management might not be why you became a plumber, but it's essential for building a successful, sustainable business. By understanding your costs, maintaining accurate records, managing cash flow, and maximizing deductions, you create the foundation for growth and profitability.

Start with the basics—separate accounts, regular bookkeeping, and proper record-keeping. As your business grows, consider professional help and technology solutions to scale efficiently. Remember, every dollar saved through smart financial management is a dollar that stays in your pocket or gets reinvested in growing your business.

The plumbing industry offers tremendous opportunity for skilled professionals who combine technical expertise with sound business practices. By mastering your finances, you position yourself not just as a plumber, but as a successful business owner building lasting value.

Running an independent pharmacy comes with unique financial challenges that set it apart from other retail businesses. From managing complex inventory systems to navigating insurance reimbursements, pharmacy owners need to master specialized accounting practices to keep their businesses healthy and compliant.

The Unique Financial Landscape of Pharmacies​

Pharmacy accounting isn't like typical retail bookkeeping. Your business operates at the intersection of healthcare and commerce, which creates distinct financial considerations that require careful attention and industry-specific knowledge.

Inventory Management Complexities​

Pharmaceutical inventory represents one of your largest assets and biggest challenges. Unlike general retail, you're managing:

• High-value stock with varying shelf lives and expiration dates
• Controlled substances requiring meticulous tracking for regulatory compliance
• Specialty medications that may cost thousands of dollars per unit
• Generic substitutions that affect both inventory counts and profit margins

Your accounting system needs to track not just quantity and cost, but also lot numbers, expiration dates, and regulatory categories. Many pharmacy owners find that traditional retail accounting software falls short when dealing with these complexities.

Insurance Reimbursement Accounting​

Third-party insurance reimbursements create unique cash flow and accounting challenges. You're essentially extending credit to insurance companies while waiting for payment, often dealing with:

• Delayed reimbursements that can take 30-90 days or longer
• Claim rejections requiring resubmission and additional tracking
• Price adjustments after the initial transaction
• DIR fees (Direct and Indirect Remuneration fees) that reduce your reimbursements retroactively

These factors make it crucial to maintain separate tracking for accounts receivable by payer, monitor outstanding claims, and forecast cash flow based on realistic reimbursement timelines.

Key Tax Considerations for Pharmacy Owners​

Pharmacy businesses face several tax situations that require specialized knowledge:

Inventory Accounting Methods​

The way you account for inventory significantly impacts your taxable income. Most pharmacies use either:

• FIFO (First In, First Out): Assumes older inventory sells first
• Weighted Average Cost: Calculates average cost across all units
• Specific Identification: Tracks actual cost of specific items (useful for high-value specialty drugs)

Your choice affects both your cost of goods sold and your tax liability, particularly in times of changing drug prices.

DIR Fees and Their Tax Impact​

Direct and Indirect Remuneration fees have become a significant concern for independent pharmacies. These retroactive fees from Pharmacy Benefit Managers (PBMs) can be substantial and are often calculated months after the original transaction. Understanding when and how to account for these fees—and whether to recognize them as they occur or when billed—requires careful planning with a knowledgeable accountant.

Business Structure Implications​

Whether you operate as a sole proprietorship, LLC, S corporation, or C corporation dramatically affects your tax obligations and opportunities. For example:

• S corporations may allow you to reduce self-employment taxes through reasonable salary planning
• C corporations face different tax rates but may be beneficial for certain pharmacy models
• LLCs offer flexibility in how you're taxed while providing liability protection

Essential Financial Reports for Pharmacy Success​

Beyond standard profit and loss statements, pharmacy owners should regularly review:

Inventory Turnover Ratio​

This metric shows how efficiently you're managing inventory. Calculate it by dividing your cost of goods sold by average inventory value. A healthy pharmacy typically turns inventory 8-12 times per year, though this varies by business model and specialty focus.

Gross Profit by Payer Type​

Break down your gross profit margins by insurance type (commercial, Medicare Part D, Medicaid, cash) to identify which payers are most profitable and which may be costing you money. Many pharmacy owners discover that certain insurance plans pay below acquisition cost on some medications.

Days Sales Outstanding (DSO)​

Track how long it takes to collect payment from insurance companies. Calculate this by dividing accounts receivable by average daily sales. Rising DSO often indicates claims processing problems or changes in payer behavior that need immediate attention.

Best Practices for Pharmacy Bookkeeping​

Implement Daily Reconciliation​

Don't wait until month-end to reconcile your pharmacy management system with your accounting records. Daily or weekly reconciliation helps you:

• Catch data entry errors quickly
• Identify theft or shrinkage promptly
• Maintain accurate inventory values
• Spot insurance claim problems early

Separate Personal and Business Finances​

This seems basic, but it's critical. Commingling funds creates tax headaches, makes financial analysis difficult, and can pierce corporate liability protections. Maintain separate:

• Bank accounts
• Credit cards
• Expense tracking systems

Track Inventory Adjustments Carefully​

Every inventory adjustment—whether from expiration, damage, theft, or error—should be documented with:

• Date and reason for adjustment
• Item details (name, NDC, quantity)
• Dollar value
• Authorization signature

These records protect you during audits and help identify loss prevention opportunities.

Monitor Key Performance Indicators Weekly​

Set up a dashboard tracking your most critical metrics:

• Prescription volume (total and by payer)
• Average reimbursement per prescription
• Generic dispensing ratio
• Inventory investment and turnover
• Cash position and projected receivables

When to Seek Professional Help​

While some pharmacy owners successfully manage their own books, consider professional accounting assistance if you're experiencing:

• Rapid growth that's straining your current systems
• Multiple locations requiring consolidated reporting
• Regulatory concerns or audit notices
• Cash flow problems despite apparent profitability
• Tax optimization questions related to business structure or deductions
• Specialty pharmacy services with unique billing complexities

Look for accountants or bookkeepers with specific pharmacy experience. The learning curve for someone unfamiliar with DIR fees, 340B pricing, and pharmacy reimbursement models can lead to costly mistakes.

Planning for Your Pharmacy's Financial Future​

Strong accounting practices do more than keep you compliant—they provide the insights needed for strategic decisions:

• Should you invest in expanded services like compounding or immunizations?
• Is it time to renegotiate contracts with PBMs?
• Would adding a second location improve profitability?
• Are you pricing your cash prescriptions competitively?

Your financial records hold the answers, but only if they're accurate, complete, and organized in ways that reveal meaningful patterns.

Taking Control of Your Pharmacy's Finances​

The independent pharmacy landscape continues to evolve, with new challenges from PBMs, changing regulations, and shifting reimbursement models. Solid accounting practices provide the foundation for navigating these changes successfully.

Start by assessing your current system: Is your bookkeeping current? Do you understand your profit margins by payer? Can you quickly access the financial data needed for decision-making? If you answered no to any of these questions, it's time to strengthen your accounting processes.

Remember that investing time and resources in proper financial management isn't just about compliance—it's about building a sustainable business that serves your community while supporting your own financial goals. Your pharmacy's success depends on dispensing accurate prescriptions and maintaining accurate books.

This guide provides general information for educational purposes. Consult with a qualified accountant or financial advisor for advice specific to your pharmacy's situation.

Choosing a credit card processor is part math, part operations. The right partner simplifies your workflow, while the wrong one can slowly bleed your margins through hidden fees and create bookkeeping nightmares. Transaction fees, payout timing, hardware costs, contracts, and data export quality all affect your bottom line—and your accounting workflow. This guide highlights popular U.S. options in 2025 and adds Beancount-friendly tips so you can keep your ledger clean from day one.

All pricing snapshots below are published U.S. rates as of September 2025 and may vary by plan, industry, and transaction volume. Always confirm current pricing on the provider’s official site.

How to Choose: A Quick Framework​

Before diving into brand names, use this framework to narrow your search. Your business's unique transaction profile is the most important factor.

• Transaction Mix

  • Mostly in-person, low average ticket: Your priority is speed and simplicity at the point of sale. Favor simple flat-rate POS systems like Square, Zettle, Clover, or Chase.
  • Mostly online/SaaS or multi-country: You need robust APIs, international payment methods, and developer-friendly tools. Look at Stripe, Adyen, or Braintree.
  • $30k–$100k+ monthly volume with a stable mix: At this scale, flat-rate pricing becomes expensive. It's time to consider interchange-plus (Helcim, Dharma) or membership (Stax, Payment Depot) models to lower your effective rate.

• Total Cost of Ownership (TCO) Don't just look at the advertised percentage. Calculate your effective rate by combining the percentage fee, fixed cents-per-transaction fee, monthly account fees, hardware costs, and potential chargeback fees. This gives you a true picture of your costs.

• Payout Cadence How quickly do you need your cash? A next-day deposit schedule versus a two-day rolling window (T+2) can significantly impact your cash-flow forecasting. We'll cover how to model this in Beancount below.

• Lock-In Avoid long-term contracts with hefty early termination fees (ETFs). Look for month-to-month billing and, crucially, the ability to easily export your transaction data via CSV or an API. Your data is your own; don't let a processor hold it hostage.

The Shortlist: Who It’s Best For​

Stripe — Best for Online-First and Platforms​

Stripe is the gold standard for internet businesses. Its excellent APIs, pre-built Checkout and Link components, robust subscription management, and global payment method support make it incredibly versatile. For physical sales, its Terminal line of hardware integrates seamlessly.

• Pricing Snapshot: Online transactions are typically 2.9% + 30¢ (domestic). In-person payments via Terminal are 2.7% + 5¢. International cards and currency conversion may incur surcharges.
• Payouts: Operates on a configurable, rolling schedule. Most U.S. businesses see funds available on a T+2 basis (two business days after the transaction).

Square — Best Turnkey POS for New Storefronts​

Square excels at getting new retail and service businesses up and running quickly. With a free and intuitive POS app, a simple hardware lineup, and fast onboarding, it's a favorite for cafes, boutiques, and service providers.

• Pricing Snapshot: In-person is 2.6% + 15¢, online is 2.9% + 30¢, keyed-in is 3.5% + 15¢, and invoices are 3.3% + 30¢.
• Payouts: Standard next-business-day transfers are free. For urgent cash needs, instant or same-day transfers are available for an additional 1.75% fee.

PayPal Zettle — Best “Micro-Merchant” Mobile POS​

Perfect for sellers at farmers' markets, pop-up shops, or conventions. Zettle offers low-cost entry hardware that integrates smoothly with the broader PayPal ecosystem, making it easy to manage funds alongside your online PayPal sales.

• Pricing Snapshot: In-person card transactions are 2.29% + 9¢. Keyed, invoice, and online transactions have separate rates.

Braintree (by PayPal) — Best for PayPal/Venmo + Cards Under One API​

Braintree is a developer-centric platform that allows businesses to accept credit cards, PayPal, Venmo, and other digital wallets through a single integration. It's a strong choice for e-commerce sites that want to offer customers a wide array of payment options.

• Pricing Snapshot: Standard rate for cards and most digital wallets is 2.89% + 29¢. Venmo is often 3.49% + 49¢. Discounts for non-profits and custom pricing for high-volume businesses are available.

Helcim — Best Transparent Interchange-Plus with Volume Discounts​

Helcim offers interchange-plus pricing with no monthly fee, making it an accessible option for businesses graduating from flat-rate models. Its pricing automatically gets cheaper as your processing volume increases, with clear tiers published on its site.

• Pricing Snapshot: Margins are typically around Interchange + 0.40% + 8¢ (card-present) and Interchange + 0.50% + 25¢ (card-not-present), with margins decreasing at higher volumes.

Dharma Merchant Services — Best Small-to-Mid B2B Interchange-Plus​

Dharma is known for its fair interchange-plus pricing and excellent support, with a focus on B2B transactions. It helps businesses qualify for lower Level 2 and Level 3 processing rates, which can lead to significant savings on corporate card transactions.

• Pricing Snapshot: Card-present is IC + 0.15% + 8¢, and e-commerce is IC + 0.20% + 11¢, plus a modest monthly fee.

Stax — Best Subscription (Membership) Pricing at Higher Volumes​

Stax uses a membership model: you pay a flat monthly subscription fee and in return get access to direct interchange rates with a "0% markup." This can be extremely cost-effective once your monthly volume is high enough to justify the subscription cost.

• Pricing Snapshot: Plans start at $99/month, with tiers based on annual processing volume.

Payment Depot — Membership Alternative to Lower Processing Costs​

Similar to Stax, Payment Depot offers interchange-plus rates under a membership model. It positions itself as a way for businesses to access wholesale processing rates without percentage markups, with an emphasis on no long-term contracts or early termination fees.

• Pricing Snapshot: Membership-style IC+ pricing. Plans are typically provided via a custom quote.

Shopify Payments — Best if You Already Run on Shopify​

If your business runs on Shopify, using Shopify Payments is a no-brainer. It's tightly integrated with your store, provides excellent fraud analysis tools, and enables the high-converting Shop Pay checkout. Using a third-party gateway on Shopify incurs additional fees.

• Pricing Snapshot: Rates are tied to your Shopify plan. Online fees range from ~2.5% to 2.9% + 30¢, while in-person rates are around 2.4% to 2.6% + 10¢ on higher tiers.

Toast — Best All-in-One for Restaurants​

Toast is purpose-built for the food and beverage industry. Its platform combines durable, restaurant-grade hardware with software for kitchen display systems (KDS), online ordering, inventory, and even payroll add-ons.

• Pricing Snapshot: A pay-as-you-go plan is available at ~3.09%–3.69% + 15¢. If you pay for hardware upfront, rates can be as low as 2.49% + 15¢ (card-present) and 3.50% + 15¢ (card-not-present).

Clover (Fiserv) — Best POS Hardware Variety (Retail/Service)​

Clover offers one of the broadest hardware lineups in the industry, from the mobile Go and Flex to the countertop Mini and Station. This variety makes it a flexible choice for retail stores and service businesses that need a specific form factor.

• Pricing Snapshot: Rates vary widely by plan and device, but in-person rates are commonly advertised as low as 2.6% + 10¢.

Lightspeed Payments — Best Mid-Market Retail POS with Deep Inventory​

Lightspeed is a powerhouse for retail businesses with complex inventory needs. Its integrated payments system works seamlessly with its advanced POS features, providing a unified platform for sales and stock management.

• Pricing Snapshot: A frequently cited U.S. reference rate is ~2.6% + 10¢ for in-person and ~2.9% + 30¢ for card-not-present transactions.

Authorize.Net — Best Standalone Gateway (Bring Your Own Merchant Account)​

A long-standing and trusted name, Authorize.Net is a payment gateway that connects your website to your merchant account. This is for businesses that have already negotiated a direct merchant account with an acquiring bank and just need the technology layer to process online payments.

• Pricing Snapshot: All-in-one: $25/mo + 2.9$25/mo + 10¢ per transaction, plus a small daily batch fee.

Chase Payment Solutions — Best Bank-Integrated POS & Fast Deposits​

For businesses that bank with Chase, their payment solutions offer a compelling advantage: the potential for same-day deposits into a Chase business checking account at no extra cost. This tight integration simplifies cash flow management.

• Pricing Snapshot: Card-present is 2.6% + 10¢, while keyed-in sales and payment links are 3.5% + 10¢.

Beancount: Model Your Payouts and Fees Cleanly​

Plain-text accounting shines when you can model real-world financial flows precisely. For payment processors, the key is using a "clearing account" to track money from the moment of sale until it lands in your bank. This preserves your gross revenue figures and makes reconciliation trivial.

Example Chart of Accounts:

Assets:Bank:Operating
Assets:Processors:Stripe      ; A clearing account for each processor
Income:Sales
Expenses:ProcessingFees
Liabilities:SalesTax:Payable

Pattern A: “Net Deposit” Processors (Most Flat-Rate)​

Most processors batch your sales, subtract their fees, and deposit the net amount. Your job is to record the gross sale first, then account for the deposit and the fee. A $100 sale with a$2.90 fee becomes:

2025-09-08 * "Online order #8421"
  Assets:Processors:Stripe               100.00 USD
  Income:Sales                          -100.00 USD

2025-09-09 * "Stripe payout"
  Assets:Bank:Operating                   97.10 USD
  Expenses:ProcessingFees                  2.90 USD
  Assets:Processors:Stripe               -100.00 USD

Why this pattern is essential: It correctly records $100 in `Income:Sales` and$2.90 in Expenses:ProcessingFees. This is critical for analyzing your true gross revenue and is exactly what you need to reconcile your books with the processor's 1099-K form at year-end.

Pattern B: “Daily Batch” with Line-Item Fees​

Some POS systems (like Toast or Clover) will show a single large deposit for a day's sales, with fees deducted as separate line items in their report. The principle is the same: balance the clearing account to zero.

2025-09-08 * "Toast batch — store #1"
  Assets:Bank:Operating                  1,943.55 USD
  Expenses:ProcessingFees                   56.45 USD
  Assets:Processors:Toast               -2,000.00 USD

Pattern C: “Membership” Pricing (Stax/Payment Depot)​

For membership models, the monthly subscription is a separate operating expense. You book it directly, while the much smaller per-transaction fees are handled using Pattern A or B.

2025-09-01 * "Stax subscription"
  Expenses:ProcessingFees                  99.00 USD
  Assets:Bank:Operating                   -99.00 USD

Importing & Reconciling Tips​

• One Clearing Account Per Processor: Create Assets:Processors:Stripe, Assets:Processors:Square, etc. If you have multiple locations, consider Assets:Processors:Toast:Store1 to isolate activity.
• Mind the Payout Cadence: A sale on Friday might not hit your bank until Tuesday. This lag is why the clearing account is so important for accurate cash forecasting.
• Automate Your Imports: Every provider offers CSV exports. Write simple Python scripts or use Fava's importer functionality to map the columns (date, gross amount, fees, net deposit) to Beancount transactions.
• Handle Sales Tax Correctly: Sales tax is not income. Split it out to Liabilities:SalesTax:Payable at the time of sale. Most POS reports provide this breakdown.
• Book Chargebacks Promptly: When a chargeback occurs, the processor debits your account. Book a reversal to Income:Sales for the sale amount and a separate entry to Expenses:ProcessingFees for the chargeback fee.

Quick Comparison Snapshot​

Which One Should a Beancount User Pick?​

• For the simplest setup with daily auto-payouts: Start with Square or Zettle. Their reports are clean and easy to import.
• For developer work, subscriptions, or multiple payment methods: Stripe or Braintree are your best bets due to their powerful APIs.
• If you process ≥$30k/month with a stable card mix: It's time to do the math. Price out Helcim (IC+) versus Stax/Payment Depot (membership) to calculate your true effective rate.
• For a restaurant POS: Compare Toast and Clover/Lightspeed, paying close attention to contract terms and hardware financing.
• If you're already on Shopify: Use Shopify Payments to avoid paying extra gateway fees.
• For same-day deposits into your operating account: Chase QuickAccept linked to a Chase business checking account is the clear winner.

Final Beancount Checklist​

• Create Assets:Processors:* clearing accounts for each processor and location.
• Always record gross sales and separate fees, even if your bank deposit is a net amount.
• Match payout dates and batch IDs from the processor's CSV report to your clearing account transactions.
• Automate your workflow by writing small importers to map CSV columns to Beancount postings.
• Review chargebacks weekly and post the reversal and fee on the day they are debited by the processor.

If you keep immaculate books in Beancount, you already think in systems. You appreciate precision, automation, and a single source of truth. This guide turns that disciplined mindset into an 11-step, practical workflow for establishing and growing business credit. We'll map each critical step to simple, automatable Beancount habits, transforming your ledger from a historical record into a forward-looking tool for financial strength.

The 2025 Quick Primer: What Actually Matters​

The world of business credit can feel opaque, but the principles for 2025 are straightforward. Here’s what you need to know before you start.

First, separate your identities. The absolute foundation of business credit is a distinct legal entity (like an LLC or corporation) with its own, separate bank accounts. Co-mingling personal and business funds is the fastest way to be denied business credit.

Next, get an Employer Identification Number (EIN). This is your business's social security number for tax purposes. It is always free and you should apply for it directly with the IRS—never pay a third-party site for this service.

Then, understand how you’ll be scored. Unlike consumer credit's unified FICO score, business credit is measured by several bureaus, each with its own methodology:

• Dun & Bradstreet PAYDEX® (1–100): This score is almost entirely driven by your payment history with vendors and suppliers. A score of 80 is considered on-time, while anything higher indicates you pay your bills early.
• Experian Intelliscore Plus (1–100): This is a predictive score that forecasts the likelihood of serious delinquency. It analyzes payment trends, public records, and other company data.
• FICO® SBSS (Small Business Scoring Service): This score is critical for accessing SBA 7(a) "Small Loans." As of 2025, the Small Business Administration (SBA) lists a minimum prescreen score of 165.

Finally, know that monitoring is fragmented. Scores differ by bureau, and accessing your full reports often costs money. Before paying for a report, try to verify which score a specific lender or vendor uses.

Heads-up: A quick note on identifiers. If you plan to sell to the U.S. federal government, the Unique Entity ID (UEI) replaced the D-U-N-S number in the SAM.gov system on April 4, 2022. However, for building your business credit file with Dun & Bradstreet, the D-U-N-S number is still essential.

The 11 Steps (and the Beancount Moves That Make Them Stick)​

1. Formalize the Entity and Separate Money Flows​

This is the non-negotiable first step. Form a legal entity, open a dedicated business checking account, and keep personal funds out. This creates a clean financial history that credit bureaus can track.

Beancount Move: Your ledger should explicitly reflect this separation from day one. Open distinct accounts for the business and document initial capitalization cleanly.

2025-01-01 open Assets:Bank:Checking:Business      USD
  institution: "Bank of Example"
2025-01-01 open Equity:Owner:Contributions         USD

2025-01-05 * "Owner Capitalization"
  Assets:Bank:Checking:Business        10000 USD
  Equity:Owner:Contributions

2. Get Your EIN (Free) and File It in Your Repo​

Apply directly at IRS.gov. Once you receive your EIN confirmation letter (SS-4), store a digital copy in a docs/ directory alongside your ledger. This keeps critical identity documents version-controlled and accessible.

Beancount Move: Use metadata at the top of your ledger file to record the EIN and link to the source document.

; organization-id: "EIN 12-3456789"
; documents: "docs/tax/SS-4.pdf"

Tip: Beware of search-ad "EIN helpers" that charge fees or harvest your data. Always verify you are on a .gov domain before entering sensitive information.

3. Claim Your D-U-N-S® Number​

A D-U-N-S number links your company to its Dun & Bradstreet credit file, which vendors and lenders use to assess your reliability. Go to the D&B website to claim or update your company's record for free.

Beancount Move: Just like your EIN, add your D-U-N-S number to your ledger's metadata. You can also link to an internal checklist for vendor onboarding to ensure you're always providing consistent information.

; duns: "123456789"
; vendor-onboarding-checklist: "docs/credit/dnb-checklist.md"

4. Open a Business Credit Card and Use It Prudently​

A revolving business credit card is a powerful tool, as issuers often report your payment history to business bureaus. Use it for regular expenses, keep your utilization modest (ideally under 30%), and never, ever miss a payment.

Beancount Move: Model your credit card as a liability. Use metadata to note which bureaus it reports to. Track purchases and, crucially, payments from your business checking account.

2025-01-01 open Liabilities:Credit:BizCard:BankCo  USD
  reports_to: "Experian, Equifax (varies)"

2025-02-04 * "Laptop (business card)"
  Assets:Equipment:Computers          1600 USD
  Liabilities:Credit:BizCard:BankCo

2025-02-15 * "BizCard payment (keep util <30%)"
  Liabilities:Credit:BizCard:BankCo    1200 USD
  Assets:Bank:Checking:Business       -1200 USD

5. Establish Vendor Net-30 Trade Lines That Report​

This is the fastest path to building a strong PAYDEX score. Find vendors that offer payment terms (e.g., Net-30) and confirm that they report your payment history to bureaus like D&B. Office supply, packaging, and shipping companies are common starting points.

Beancount Move: Track each vendor invoice in your Accounts Payable (Liabilities:AP). When you pay the invoice, record the transaction and consider adding a tag to track your payment habits.

2025-02-03 * "Acme Packaging — Net30"
  invoice: "INV-2025-023"
  Expenses:COGS:Packaging              525.00 USD
  Liabilities:AP:AcmePackaging

2025-02-27 * "Pay Acme INV-2025-023 (paid early)"
  Liabilities:AP:AcmePackaging         525.00 USD
  Assets:Bank:Checking:Business       -525.00 USD
  ; tag: net30-early

6. Pay on Time or Early to Target PAYDEX ≥ 80​

D&B explicitly maps a PAYDEX score of 80 to "prompt/on-time" payments. Scores above 80 signify early payments. If your cash flow allows, paying invoices 10–20 days before the due date can significantly boost your score.

Beancount Move: This is a process, not a transaction. Set up a recurring reminder (e.g., a cron job or a Makefile task) that queries your open Liabilities:AP accounts and flags invoices that are due in the next 30 days, prompting you to schedule payments early.

7. Keep Business Identity Consistent Everywhere​

Use the exact same legal name, address, phone number, and industry codes (like NAICS) across your bank accounts, IRS filings, insurance policies, and credit bureau profiles. Inconsistencies can lead to fragmented credit files or mismatches.

Beancount Move: Establish a single source of truth for this data in your ledger's top-level metadata.

; company-legal-name: "Acme Robotics, Inc."
; naics: "541511"
; address: "123 Market St, Springfield, ST 12345"

8. Monitor Your Business Credit and Dispute Errors​

Business credit reports are less standardized and regulated than consumer reports, making errors more common. Periodically pull your reports from the major bureaus and dispute any inaccuracies immediately.

Beancount Move: Maintain a directory for docs/credit/ where you store PDFs of your credit reports and any dispute correspondence. You can link to these documents directly from transactions that were misreported, creating an auditable trail.

9. Graduate to Bank Lines and SBA Options (When Ready)​

Once you have a solid history of on-time payments, you can approach banks for lines of credit or apply for SBA-backed loans. For SBA 7(a) Small Loans, lenders use the FICO SBSS score, and the current minimum prescreen is 165. Keep your personal credit clean as well, as it's often a factor.

Beancount Move: Use your ledger to track key financial metrics that lenders care about, like your Debt Service Coverage Ratio (DSCR) or cash buffer days. You can define these as custom metadata and run queries against your ledger to see if you meet a lender's covenants before you even apply.

10. Automate the Habits That Move Scores​

Good credit is the result of consistent habits. Set up autopay for at least the minimum payment on business credit cards. Schedule a weekly time block to run your A/P. Regularly review A/R aging to protect your cash flow. Systematize the behaviors that lead to good scores.

Beancount Move: Document your financial policies as metadata. This serves as a reminder and a checklist for your operations.

; policy:
; - autopay: "Liabilities:Credit:BizCard:BankCo:min"
; - payables-run: "weekly, Mondays"
; - target-utilization: "<30%"

11. Keep Learning Your Scores’ Dials​

Finally, understand what drives each score so you can focus your efforts:

• PAYDEX (D&B): Driven almost entirely by payment timeliness and the number of trade lines reporting.
• Intelliscore (Experian): Influenced by payment trends, public records (liens, judgments), and firmographics (age of business, industry risk).
• SBSS (FICO/SBA): A blended model using business credit, personal credit, and business financials. Used heavily for SBA 7(a) loans.

A Compact Beancount Starter for Credit-Building​

Here is a minimal credit.beancount file to get you started on tracking these activities in a structured way.

option "operating_currency" "USD"

; --- Accounts ---
2025-01-01 open Assets:Bank:Checking:Business      USD
2025-01-01 open Assets:Equipment                   USD
2025-01-01 open Liabilities:AP:Vendors             USD
2025-01-01 open Liabilities:Credit:BizCard:BankCo  USD
2025-01-01 open Expenses:COGS:Packaging            USD
2025-01-01 open Expenses:Office:Supplies           USD
2025-01-01 open Income:Sales                       USD
2025-01-01 open Equity:Owner:Contributions         USD

; --- Identity (metadata you can query) ---
; EIN: 12-3456789
; DUNS: 123456789
; NAICS: 541511
; address: "123 Market St, Springfield, ST 12345"

; --- Example workflow ---
2025-02-03 * "Acme Packaging — Net30" "Boxes for March"
  invoice: "INV-2025-023"
  vendor_duns: "987654321"
  Expenses:COGS:Packaging              525.00 USD
  Liabilities:AP:Vendors

2025-02-27 * "Pay Acme INV-2025-023 (early)"
  Liabilities:AP:Vendors               525.00 USD
  Assets:Bank:Checking:Business       -525.00 USD

2025-03-04 * "Laptop (business card)"
  Assets:Equipment                    1600.00 USD
  Liabilities:Credit:BizCard:BankCo

2025-03-15 * "BizCard payment (util <30%)"
  Liabilities:Credit:BizCard:BankCo    1200.00 USD
  Assets:Bank:Checking:Business       -1200.00 USD

Common Questions​

How many trade lines do I need to generate a D&B score? Dun & Bradstreet requires a sufficient number of verified trade experiences to generate a PAYDEX score. While there's no magic number, the key is having multiple vendors consistently reporting your on-time or early payments.

Where do I check my business credit scores? Each bureau (D&B, Experian, Equifax) offers paid access to reports on their websites. Some third-party services aggregate data, but they may not show the specific score a lender uses. Before paying, ask your potential lender or vendor which credit bureau and score they rely on.

I see sites charging money for an EIN. Are those legit? No. An EIN is always free from the official IRS.gov website. Avoid non-.gov domains and sponsored search ads that pose as official IRS pages; they are designed to charge you for a free service or collect your data.

Recap: The System in One Checklist​

1. Form an entity → Open a dedicated business bank account.
2. Get an EIN (free) → Store the SS-4 document in your code repository.
3. Claim your D-U-N-S number → Align your business identity across all systems.
4. Add a business credit card → Automate payments and keep utilization low.
5. Open 2–3 Net-30 vendor accounts that report → Pay them early to target a PAYDEX score of 80 or higher.
6. Monitor your reports → Dispute any and all inaccuracies with the bureaus.
7. When ready, approach lenders → Keep the SBA's SBSS prescreen minimum of 165 in mind as a benchmark for readiness.

Sources for Further Reading​

• U.S. Small Business Administration: On establishing business credit and the SBA 7(a) Small Loan SBSS minimum.
• IRS: On obtaining an EIN for free.
• Dun & Bradstreet: On PAYDEX scores and D-U-N-S numbers.
• Experian: On Intelliscore Plus and business credit basics.
• Investopedia: On monitoring business credit.
• GSA: On UEI replacing D-U-N-S in SAM.gov.

As a founder, you live and breathe your product, your customers, and your team. But are you just as connected to the financial pulse of your business? Financial health can feel like a complex topic reserved for accountants, but it really comes down to four pillars: liquidity, profitability, insolvency, and operational efficiency.

This article provides a concise, founder-friendly checklist you can run monthly or quarterly to get a clear picture of where you stand. Best of all, it’s designed specifically for users of the plain-text accounting tool Beancount, showing you exactly where to look and what to track.

Beancount Tip: Fava, the web interface for Beancount, is your command center for this checklist. Its built-in Income Statement, Balance Sheet, and Holdings reports, combined with its query capabilities, provide everything you need to check these metrics fast.

The 12-Question Financial Health Check​

1) Do you have enough cash to sleep at night?​

• What to look at: Your cash reserve. The common rule of thumb is to hold 3 to 6 months of operating expenses in cash or highly liquid assets. Adjust this target based on your business’s volatility, seasonality, and growth plans.
• Why it matters: A healthy cash buffer allows your business to absorb unexpected shocks—a lost client, a market downturn, a supply chain delay—without resorting to expensive, reactive financing. It's the foundation of financial peace of mind.
• Where to check in Beancount: In Fava, navigate to the Balance Sheet and sum the balances in your Assets:Bank:* accounts, plus any short-term liquid investments you hold.

2) Is today’s liquidity solid?​

• What to look at: The Current Ratio (Current Assets / Current Liabilities). For an even stricter view, use the Quick Ratio (or "Acid Test"), which excludes inventory from current assets. A ratio above 1.0 is generally considered stable, but this varies by industry.
• Why it matters: These ratios gauge your ability to cover all your short-term obligations (like payroll and supplier bills) using only your short-term assets. They answer the critical question: "If we had to pay all our upcoming bills right now, could we do it without distress?"
• Where to check in Beancount: Your Balance Sheet in Fava provides all the necessary figures. To make this easy, ensure you are tracking Assets:Receivables, Assets:Inventory, and Liabilities:Payables in separate sub-accounts.

3) Are you consistently profitable?​

• What to look at: The Net Income on your Income Statement. More importantly, look at the trend. Is it positive and growing month-over-month or quarter-over-quarter?
• Why it matters: Profit is the engine of your business. It funds growth, attracts investment, and provides the ultimate cushion against downturns. Consistent profitability is the clearest sign of a sustainable business model.
• Where to check in Beancount: Go to the Income Statement in Fava. (Pro-tip: consider enabling Fava’s option to invert income signs, which many find more intuitive for reading financial reports.)

4) Are gross margins holding (or improving)?​

• What to look at: Your Gross Margin Percentage, calculated as (Revenue − COGS) / Revenue. COGS, or Cost of Goods Sold, is typically Beginning Inventory + Purchases − Ending Inventory.
• Why it matters: Gross margin reflects the profitability of your core product or service before overhead. A shrinking margin is a major red flag, often signaling issues with pricing power, discounting pressure, or rising supply costs.
• Where to check in Beancount: Categorize all direct costs under Expenses:COGS:*. You can then review your margin directly on Fava’s Income Statement.

5) Are you collecting on time? (DSO)​

• What to look at: Days Sales Outstanding (DSO), which is approximately (Accounts Receivable / Total Credit Sales) × Number of Days. This tells you the average number of days it takes to collect payment after a sale.
• Why it matters: A high DSO means your cash is trapped in your customers' bank accounts, tightening your own cash flow. Efficient collections are crucial for maintaining liquidity.
• Where to check in Beancount: Track invoices using metadata (e.g., invoice: "INV-123" and customer: "AcmeCorp"). You can then monitor the total A/R balance on Fava’s Balance Sheet.

6) Are you turning inventory efficiently?​

• What to look at: Inventory Turnover, calculated as COGS / Average Inventory. This measures how many times you sell and replace your inventory over a period. You can also track Days Sales of Inventory (DSI) to see how many days stock sits on the shelf.
• Why it matters: Slow-moving inventory ties up cash that could be used elsewhere. Conversely, turning inventory too quickly can lead to stockouts and lost sales. Finding the right balance is key.
• Where to check in Beancount: Use Beancount’s built-in inventory lot tracking to manage cost basis and quantities accurately. You can then review your current positions in Fava under Holdings.

7) How fast do you turn cash? (CCC)​

• What to look at: The Cash Conversion Cycle (CCC), calculated as DSI + DSO − DPO (Days Payable Outstanding). It measures the time between paying for inventory/supplies and receiving cash from customers.
• Why it matters: A shorter CCC means your business needs less external capital to operate and grow. A negative CCC (common in businesses like Dell or Amazon) means your customers pay you before you have to pay your suppliers—a powerful position for liquidity.
• Where to check in Beancount: With DSI and DSO already tracked, the final piece is DPO, which you can derive from your Liabilities:Payables account. Reviewing this trend quarterly is sufficient for most businesses.

8) Can you comfortably service your debt? (DSCR)​

• What to look at: The Debt Service Coverage Ratio (DSCR), calculated as Net Operating Income / Total Debt Service. Many lenders, including for SBA loans, look for a ratio of 1.25 or higher.
• Why it matters: This ratio signals your ability to make your loan payments from the cash your business generates. A healthy DSCR is critical for maintaining good relationships with lenders and avoiding breaches of loan covenants.
• Where to check in Beancount: Tag your loan payments (both principal and interest). You can use a query or manually summarize your total debt service for the period and compare it to your operating income from the Income Statement.

9) Is leverage appropriate for your business model?​

• What to look at: Your Debt-to-Equity ratio and overall Working Capital. Don't just look at a single number; analyze the trend over several quarters.
• Why it matters: Debt can be a powerful tool for financing growth, but it also introduces risk. The right level of leverage depends on your industry and risk tolerance. Are you taking on debt faster than you're growing equity?
• Where to check in Beancount: Fava’s Balance Sheet clearly lays out your total liabilities versus your total equity.

10) How concentrated is your revenue?​

• What to look at: The percentage of total revenue coming from your top 1, 3, or 5 customers. Many practitioners flag a risk when a single customer accounts for 10-20% or more of your revenue.
• Why it matters: Over-reliance on a few large clients magnifies churn risk and can weaken your pricing power. Diversification creates a more resilient business.
• Where to check in Beancount: This is where metadata shines. Add a customer: tag to every income posting. You can then use Fava's filtering or Beancount's query language to pivot revenue by customer.

11) Do your unit economics work?​

• What to look at: The Contribution Margin for each product or service line (Revenue - All Variable Costs).
• Why it matters: This tells you if scaling a particular offering will add cash to your bottom line or just burn through it faster. If the contribution margin is negative, you lose money on every additional sale.
• Where to check in Beancount: Track variable costs and revenue with specific metadata tags like product: "Widget-A" or channel: "Retail". This allows you to slice and dice your data with queries to calculate profitability at a granular level.

12) Are your books clean and audit-ready?​

• What to look at: Do you have clear documentation, a consistent chart of accounts, and are you retaining records for as long as the IRS recommends?
• Why it matters: Clean books reduce errors, dramatically speed up tax preparation, and are essential for securing financing or passing due diligence if you ever sell your company.
• Where to check in Beancount: Use invoice: and document: metadata, and leverage Fava’s ability to link directly to source documents (like PDFs of receipts or invoices) to keep proof organized and accessible.

A One-Hour Monthly Financial Ritual​

Turn this checklist into a routine. Block out one hour on the first business day of each month to perform this health check.

• (15 min) — Cash & Runway: Confirm your cash balance. Review upcoming major payables and expected inflows from receivables. Re-validate that you still have your 3–6 month buffer.
• (15 min) — P&L Review: Scan your net income and, most importantly, your gross margin trend. Did margins dip? If so, investigate whether it was due to discounting, returns, or higher COGS.
• (15 min) — Working Capital Check: Quickly glance at your DSO, inventory turnover, and DPO. Calculate your CCC. Identify any actions needed, like following up on late invoices or adjusting inventory reorder points.
• (15 min) — Solvency & Risk: Check your DSCR if you have debt. Review any changes in your Debt-to-Equity ratio and revenue concentration. Are any trends moving in the wrong direction?

Final Reminders​

• Benchmarks vary by industry. A "good" current ratio for a SaaS business is very different from that of a retail store. Compare your metrics against your own history first, and then against industry peers.
• Trends beat snapshots. A single data point can be misleading. Charting your key ratios over 6–12 months will reveal the true direction of your business.
• Plain-text wins. The beauty of Beancount is transparency. If a number on a report looks off, you can drill down to the exact plain-text transaction in seconds. This puts you in complete control of your own financial narrative.

A business line of credit (LOC) is one of the most flexible financing tools available, but its mechanics can be tricky. It lets you borrow up to a set limit, repay, and borrow again, paying interest only on what you use. It's ideal for smoothing cash flow, bridging accounts receivable gaps, and handling other short-term needs.

However, navigating secured vs. unsecured lines, variable rates, hidden fees, and tax implications is crucial. This guide breaks down everything owners and bookkeepers need to know, complete with practical examples for tracking it all in Beancount.

What a Business Line of Credit Is (and Isn’t)​

Think of a business line of credit as revolving working capital. It’s a preset credit limit you can draw from whenever you need funds. Once you repay the borrowed amount, your available credit is restored, ready to be used again. The simplest analogy is: “credit card mechanics, business-loan pricing.”

This makes it fundamentally different from a term loan. A term loan provides a lump sum of cash upfront, which you repay over a fixed period through regular installments. LOCs are built for flexibility and short-term cash cycle management, whereas term loans are better suited for large, long-term investments like purchasing equipment or real estate.

When an LOC Makes Sense​

A line of credit shines in specific, recurring business scenarios:

• Bridging Receivables and Inventory Cycles: This is the classic use case. You can draw from your LOC to pay suppliers for inventory and then repay the line weeks or months later when your customers pay their invoices. It’s a perfect tool for wholesalers, agencies, and seasonal businesses that face predictable cash flow gaps.
• Emergency Buffer: Unexpected expenses are inevitable. An LOC acts as a ready-to-draw backstop for covering a payroll shortfall, funding an emergency repair, or managing a sudden operational need. It’s far more efficient than applying for a new loan every time a surprise occurs.
• Opportunistic Buying: Did a key supplier offer a significant discount for early payment? You can use your LOC to seize the opportunity, capture the savings, and repay the draw once your own cash flow catches up.

Secured vs. Unsecured (Read the Lien Language)​

Lenders need assurance they’ll be repaid, which is why most lines of credit are secured by collateral.

• Secured Lines: Many bank LOCs are secured by specific assets, like your accounts receivable or inventory. More commonly, a lender will place a blanket UCC lien on the business. This gives the lender a claim on most of your business assets in the event of a default. It is critical to read the security agreement and confirm if any key assets (like intellectual property) are excluded assets.
• Unsecured Lines: These are harder to qualify for, typically come with lower limits and higher interest rates, and are reserved for businesses with stellar credit. They don't require you to pledge specific collateral, but many lenders will still require a personal guarantee from the owner.
• SBA Options: For U.S. borrowers, the Small Business Administration (SBA) offers programs like the 7(a) Working Capital Pilot (WCP) for monitored lines of credit and CAPLines, which are asset-based revolvers tied directly to short-term working capital needs.

Practical Tip: Always ask the lender to spell out any carve-outs in the lien agreement. "Excluded assets" clauses are negotiable and can prevent a blanket lien from interfering with other financing, like an equipment loan.

How Costs Work (Rates + Fees)​

The cost of an LOC isn't just the interest rate. You must account for a variety of potential fees.

• Interest: You are only charged interest on the drawn amount. Rates are typically variable, calculated as a benchmark rate (like the Prime Rate) plus a margin (e.g., Prime + 1.5%). As you repay the principal, your interest cost decreases and your credit availability is restored.
• Fees to Watch For:
  • Origination Fee: A one-time fee charged when you open the line.
  • Annual or Monthly Maintenance Fee: A recurring charge to keep the line open, sometimes called a non-usage fee if you don't draw from it.
  • Draw Fee: A fee charged each time you take funds from the line.

These costs add up. Before committing, model your expected usage to find the true cost.

Back-of-the-Envelope Example​

Let's say you have a $100,000** limit and draw **$40,000 for two months at 12% APR. The line has a 2% draw fee and a $150 annual fee.

• Interest ≈ $40,000 × 12$800**
• Draw Fee = 2% × $40,000 = **$800**
• Annual Fee = $150
• Total Cost ≈ $1,750

In this scenario, the fees make the effective cost significantly higher than the headline 12% APR.

Qualifying and Staying in Good Standing​

Lenders evaluate your business's health based on revenue consistency, time in business, and both business and personal credit scores. Building a strong history of on-time payments is the best way to gain access to better terms and lower rates.

Most LOCs aren't "set it and forget it." They often require annual renewal, where the lender reviews updated financial statements. Your agreement may also include financial covenants, such as maintaining a minimum Debt Service Coverage Ratio (DSCR) or interest coverage ratio. If your financial metrics slip, the lender has the right to reduce your limit or freeze the line entirely.

LOC vs. Term Loan vs. Credit Card​

Choose the right tool for the job:

A Note on U.S. Taxes​

Interest paid on a business line of credit is generally a deductible business expense. However, under Section 163(j) of the tax code, this deduction may be capped.

A small-business exception exists for companies whose average annual gross receipts for the prior three years fall below an inflation-adjusted threshold (around $30 million for 2024** and **$31 million for 2025). Always confirm the specifics with your tax advisor, as these rules are complex.

Beancount: How to Record a Line of Credit​

Tracking an LOC in a plain-text ledger like Beancount ensures clarity and accuracy. Below are illustrative examples of the key transactions. (Note: In Beancount, increasing a liability uses a negative amount, while repaying it uses a positive amount).

1. Open Accounts & Document the Facility​

First, set up the necessary accounts in your ledger. It's a best practice to add a note with the LOC's key terms.

2025-01-01 open Assets:Bank:Operating         USD
2025-01-01 open Liabilities:LOC:BigBank       USD
2025-01-01 open Expenses:Interest:LOC         USD
2025-01-01 open Expenses:BankFees             USD

; Optional: Document the facility's terms with a note
2025-01-01 note Liabilities:LOC:BigBank "Limit=100000, Rate=Prime+1.50%, Secured by A/R & Inventory (UCC-1)"

2. Draw Funds​

When you transfer funds from the LOC to your operating account, you increase cash and increase the liability.

2025-03-03 * "Draw from LOC to cover receivables timing"
  Assets:Bank:Operating               40000.00 USD
  Liabilities:LOC:BigBank            -40000.00 USD

3. Accrue Monthly Interest​

At the end of the month, record the interest incurred as an expense, which adds to the total amount you owe.

2025-03-31 * "Accrue LOC interest for March"
  Expenses:Interest:LOC                 800.00 USD
  Liabilities:LOC:BigBank              -800.00 USD

4. Record a Draw Fee or Maintenance Fee​

Book any fees as an expense, paid from your operating account.

2025-03-31 * "LOC draw fee (2%)"
  Expenses:BankFees                     800.00 USD
  Assets:Bank:Operating                -800.00 USD

5. Make a Payment (Interest + Principal)​

A payment reduces your operating cash and reduces the liability balance.

2025-04-10 * "LOC payment (principal + interest)"
  Liabilities:LOC:BigBank             10800.00 USD
  Assets:Bank:Operating              -10800.00 USD

Due Diligence & Negotiation Checklist​

Before you sign, get clear answers to these questions:

• Fees: Request a full fee table: origination, annual/maintenance, inactivity, draw, and wire/ACH fees.
• Renewal: What is the renewal process? What could trigger a limit reduction or a freeze?
• Lien Scope: What specific assets are covered by the lien? Are there any exclusions?
• Covenants: Are there financial covenants like DSCR? How often are they tested, and what happens if you temporarily fall short?
• SBA Terms: If it's an SBA-backed line, is it a WCP or CAPLines facility? How is your borrowing base calculated and reported?

Final Word​

A well-structured line of credit is an invaluable tool for managing a growing business. The key is to fully understand the collateral you're pledging, the total cost including all fees, and the obligations required to keep the line in good standing.

By keeping a clean ledger in Beancount with clear metadata, you can track your usage, understand its true cost, and ensure this flexible tool remains a powerful asset for your business.

This article is for educational purposes and does not constitute financial, legal, or tax advice. Consult with a qualified professional for guidance specific to your situation.

Deciding where to park your small business's cash reserves can feel like a balancing act between earning a decent return and keeping funds accessible. The two most common, safest options are high-yield savings accounts and certificates of deposit (CDs). Each serves a distinct purpose, and choosing the right one depends on your timeline and liquidity needs.

Let's break down the differences, explore the nuances of FDIC insurance for businesses, and then dive into practical Beancount patterns to track it all cleanly.

TL;DR: The Quick Summary​

• Savings / Money Market Deposit Accounts (MMDAs): Best for liquid, everyday operating cash and near-term tax payments. Their interest rates are variable. While the Fed removed old withdrawal limits, banks can still set their own rules.
• Certificates of Deposit (CDs): Offer a higher, fixed yield if you can lock up cash for a specific term. Pulling money out early triggers a penalty.
• Safety First: Both are FDIC-insured up to $250,000 per depositor, per bank, per ownership category. The rules differ slightly for sole proprietorships versus corporations.
• Over the Limit?: For balances above $250,000, services like an Insured Cash Sweep (ICS) can spread your funds across multiple banks to maximize insurance coverage while you maintain a single banking relationship.
• Beancount Users: Skip to the end for journal patterns to model CDs, accrue interest, and handle early withdrawal penalties correctly.

What Each Account Does Well 🏦​

High-Yield Savings / Money Market Deposit Accounts (MMDAs)​

Think of these as your business's primary cash hub. They are designed for safety and accessibility.

• Liquidity: This is their main advantage. You can withdraw funds anytime without penalty. It's important to note that even though the Federal Reserve removed the old "six convenient withdrawals per month" rule (Regulation D) in 2020, individual banks are still free to impose their own transaction limits or fees. Always read your account's terms.
• Insurance & Safety: Savings and MMDAs at an FDIC-insured bank are covered. Don't confuse these with money market mutual funds offered by brokerages, which are investments and are not FDIC-insured.
• Best Use Case: Perfect for your operating cash buffer (3-6 months of expenses), funds set aside for near-term payroll or taxes, and your general emergency reserve.

Certificates of Deposit (CDs)​

CDs are a deal you strike with the bank: you agree not to touch your money for a set term (e.g., 3, 6, 12 months), and in return, the bank gives you a higher, fixed interest rate.

• Yield Certainty: The fixed rate is a key benefit, protecting you if market rates fall. The flip side is the penalty for early withdrawal. If you break a CD within the first six days, federal rules mandate a minimum penalty of seven days' simple interest. After that, the penalty is determined by the bank's own policy (e.g., three months of interest).
• Insurance & Safety: CDs carry the same FDIC insurance as savings accounts, up to the same $250,000 limit.
• Best Use Case: Ideal for cash you are certain you won't need for the duration of the term. This could be money earmarked for a tax payment nine months away or a reserve for a capital expenditure you plan to make next year. CD laddering—opening multiple CDs with staggered maturity dates (e.g., 3, 6, 9, and 12 months)—is a popular strategy to balance higher yields with regular access to cash.

FDIC Coverage: The Practical Bits for Businesses 🛡️​

The FDIC insurance rules are straightforward but have important distinctions for different business structures.

• The Headline Rule: You get $250,000 of coverage per depositor, per insured bank, per ownership category. All your deposits (checking, savings, MMDAs, CDs) within the same ownership category at a single bank are added together to determine your coverage.
• Sole Proprietorships: Business accounts for a sole prop are treated as the owner's individual accounts. They are combined with the owner's other personal single accounts at that same bank for one $250,000 insurance limit.
• Corporations, LLCs & Partnerships: These legal entities are insured separately from their owners' personal accounts. The business itself gets its own $250,000 of coverage per bank.
• Need More Coverage?: If your business holds more than $250,000, you don't have to juggle multiple banking relationships. Ask your bank about an Insured Cash Sweep (ICS). This service automatically distributes your deposits across a network of other FDIC-insured institutions, keeping all your funds insured while you manage them through your primary bank.

When a Small Business Should Favor Each Option 🤔​

• Choose a Savings/MMDA when…

  • Your cash flow is unpredictable or you have frequent, variable expenses.
  • You're building your 3–6 month operating expense buffer.
  • You need immediate access to funds and are willing to accept a variable interest rate.

• Choose a CD when…

  • You have a surplus of cash that you can confidently lock away for a fixed term.
  • You want to lock in a specific interest rate and protect your return from market fluctuations.
  • You are building a CD ladder to create a predictable schedule of maturing cash.

A blended approach is often best: keep your immediate operating cash in a high-yield savings account and place longer-term reserves into a CD ladder or short-term Treasuries.

Important Fine Print to Read 📝​

• Early Withdrawal Penalties: These are specific to each bank and will be disclosed in your CD agreement. The best way to avoid them is to plan your ladder carefully so you don't have to break a CD.
• Transaction Limits on Savings: Just because the federal rule is gone doesn't mean your bank won't charge you a fee after a certain number of monthly withdrawals. Check your account agreement.
• Taxes on Interest: Interest earned from both savings and CDs is generally taxable income in the year it's credited to your account. You'll receive a Form 1099-INT. If you pay an early withdrawal penalty, it is deductible. The penalty amount appears in Box 2 of your 1099-INT and is typically treated as a business expense.

Alternatives Worth Knowing​

• Treasury Bills (T-Bills): These are short-term loans to the U.S. government that mature in 4 to 52 weeks. They are considered one of the safest investments in the world, backed by the full faith and credit of the U.S. government (not FDIC insurance). They are highly liquid and can be a great option for cash reserves exceeding FDIC limits.
• Money Market Mutual Funds (MMFs): Offered by brokerage firms, these are investment products, not bank deposits, and are not FDIC-insured. They invest in high-quality, short-term debt and aim to keep a stable value of $1 per share, but this is not guaranteed.

A Decision Cheat-Sheet ✅​

Beancount: How to Model Savings and CDs 💻​

For those of us managing our business finances with plain-text accounting, here are some simple, effective patterns for tracking these accounts in Beancount.

1) Chart of Accounts​

First, ensure you have the necessary accounts. Adjust the names to fit your own chart.

Assets:Bank:Checking
Assets:Bank:Savings
Assets:Bank:CD:12M              ; Create a unique account for each CD
Assets:InterestReceivable       ; Optional, for monthly accruals
Income:Interest:Bank
Expenses:Bank:EarlyWithdrawalPenalty
Documents:Bank                  ; To link statements and agreements

2) Open and Fund a CD​

When you open a CD, it's a simple transfer from one asset account to another.

; Open a 12-month CD for $50,000
2025-01-15 * "Open 12M CD @ fixed rate"
  Assets:Bank:CD:12M              50,000.00 USD
  Assets:Bank:Checking           -50,000.00 USD
  document: "Documents:Bank/CD-Agreement-2025-01-15.pdf"

3) Recognize Interest: Two Methods​

Option A: Recognize Interest Only When Paid (Simple)​

If your bank credits all interest at maturity, this is the easiest method.

; CD matures; principal + interest paid to checking
2026-01-15 * "CD matured; interest credited"
  Assets:Bank:Checking              52,375.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Income:Interest:Bank             -2,375.00 USD

Option B: Accrue Interest Monthly (Better for Reporting)​

For more accurate monthly financial statements, you can accrue the interest earned each month.

; Monthly accrual (illustrative amount)
2025-02-15 * "Accrue CD interest"
  Assets:InterestReceivable            197.40 USD
  Income:Interest:Bank               -197.40 USD

; At maturity, reverse the receivable when the cash arrives
2026-01-15 * "CD matured; settle accrued interest"
  Assets:Bank:Checking              52,375.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Assets:InterestReceivable        -2,372.80 USD
  Income:Interest:Bank                 -2.20 USD   ; true-up for rounding

4) Early Withdrawal and Penalty​

Recording a penalty requires an extra posting to an expense account. This keeps your reporting clean and makes tax time easier.

; Break CD early; bank pays back principal plus net interest after penalty
2025-06-10 * "Early CD redemption; penalty applied"
  Assets:Bank:Checking              50,900.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Income:Interest:Bank             -1,200.00 USD
  Expenses:Bank:EarlyWithdrawalPenalty   300.00 USD
  document: "Documents:Bank/1099-INT-2025.pdf"  ; Box 2 shows the penalty

5) High-Yield Savings Interest and Reconciliation​

Recording interest from a savings account is straightforward. Use a balance assertion to confirm your books match the bank statement.

; Monthly interest posted to savings
2025-03-31 * "Monthly interest - Savings"
  Assets:Bank:Savings                   185.23 USD
  Income:Interest:Bank                -185.23 USD

; Reconcile with the month-end statement
2025-03-31 balance Assets:Bank:Savings  150,185.23 USD

Tip: Always attach digital copies of your statements and CD agreements using the document: metadata tag. At tax time, you can easily search for Expenses:Bank:EarlyWithdrawalPenalty and verify the amount against Box 2 of your 1099-INT.

Final Thoughts: A Simple Cash Policy​

• Segment Your Cash: Keep your runway plus 1–2 months of operating expenses in a liquid Savings/MMDA. Place reserves for the next 3–12 months in a CD ladder or T-Bills.
• Mind Your Insurance: Keep balances for each legal entity under the $250k limit per bank, or use an ICS service.
• Avoid Surprises: Read the fine print on withdrawal rules and CD penalties before you commit your cash.
• Stay Tax-Aware: Remember that interest is taxable and early-withdrawal penalties are deductible. Consult with your CPA to ensure you're handling them correctly.

This article is for educational purposes and does not constitute financial or tax advice. Please consult with a qualified professional for guidance specific to your business.