WAIT A MINUTE!!!!! Yes, you! Wait! One! Minute! I know you have been working hard, early morning and late nights! I know you are tired and the warm weather is screaming vacation. I know that newsletter just hit your email about a discount flight with the hotel and car bundle being advertised but wait one minute! Which card about you about to swipe? Better yet, whose money are you about to use? Now, I know technically all of the money is yours (or maybe 50% of it, please respect your partners) but hear me out. I’m asking whose money it is because vacation (a real vacation not a “WORK” trip to Florida) is a personal expense and personal finances should cover that. Hear me out I promise you I have a point. As an entrepreneur, small business owner, side hustler or whatever title you identify with, your business funds and expenses should be separate and apart from your personal. What does this mean? I’m saying funds from goods sold or services provided should be separate and apart from your personal cash. Let me explain why this should be done and how to go about doing it.
What am I talking about? Does it matter where the money goes or how it’s spent once all the bills are paid? Yes! Yes it does! No matter what column you place yourself as a business owner or just a civilian with a side hustle after your 9-5, operating like a legitimate is a great ingredient to longevity and growth. Now when I say legitimate I mean an entity with structure and organization. This also includes proper procedures being in place along with record keeping and some accountability. Separating your business finances from your personal Is just one small but crucial part. Being able to see business expenses without having to figure out if that twenty-dollar charge was for inventory or Netflix makes accounting so much easier. In order to see cash flow or to even confirm if your business is profitable clear and concise financial records are a MUST! Take out and your cell phone bill just muddy up the water. Unless it’s business! (wink wink).
Another aspect to look at on why to keep your finances separate is that it allows safety from financial liability either way. I’ve seen persons party with the revenue from goods and services and while it was a good time that hindered their businesses. I’ve also seen persons struggle with loan or rent payments because their personal cash was tied up in business inventory. This is a blurred line that’s quickly cleared up when we keep the two apart to live and operate separately.
What about investors or bank funding? Maybe you might want to move on and sell the whole business. No one wants to take the risk of investing without some reassurance. Your financials show your business’ performance. Facebook comments, social media following and even what you say about your business just isn’t sufficient. Legendary businessman and wordsmith Shawn Carter (yes I mean jay-z) once said, “Men lie, women lie, numbers don’t” (Unless you’re cooking the books but we won’t talk about that today)
“Separate, Separate, Separate, that’s all you’ve been saying this whole time Jay we get it! How??” Separate accounts, it starts there. Have a business account and if you don’t have a business account get one ASAP! Until then use an account that’s different from your usual personal operational account. This means an account that’s not tied to your Netflix or car note. This account will have no personal deposits or withdrawals.
If you want to really take it a step further and even more organized you can have multiple business accounts. Now, not every business is to the level of operations where you need to have several accounts all serving different purposes. But multiple accounts help to clarify or business’ financial picture even more. Savings accounts, operational accounts, and client accounts all work together to help keep funds organized and ordered. Great! We have at least one designated account solely for your business my next suggestion is to put yourself on a salary.
Paying yourself a salary further separates your money from the businesses. I know salary isn’t exactly a sexy word for a boss but headaches and declined transactions aren’t either. Paying yourself a salary means you have to look at your business finances objectively. How much is the business actually making? What other expenses are necessary for the business to continue AND grow? (You can’t do any of this if you don’t have a clear financial picture but hey I said that already). Once you do this, you have to calculate how much you can afford to pay yourself and not bankrupt your business. With a consistent salary deposit for you, you now have the funds to pay for your vacation, hotel and a nice swimsuit/speedo for your pool day. The best part of this is not to worry whatsoever about interference or dipping into business funds and operations. Another plus with paying yourself a salary is that it helps with your personal credit applications (I will explain this further in another article in more detail).
This isn’t a tuck-shop you’re running here (Unless you actually have a tuck-shop, in that case, read this twice). The way you manage your finances is just as important as your product, your marketing, and your operations. In addition to your business, your personal finances are vital to your lifestyle, goals and aspirations. Let’s not forget how we got her, vacation. With clear orderly finances, your business can operate and run as planned and you can vacay with a clear conscience. Wear sunscreen, enjoy yourself and make sure the money your spending is yours and not the businesses.