Sorting out your finances can be tricky! Luckily the Ye! team has answered some important questions for what to do and what not to do in regards to separating your business finances from your own. Bring on the questions.
My business is doing well, but I am unable to separate my own money from my business's money and therefore, I end up spending it all. What can I do to avoid confusing my finances?
If you are like most other successful entrepreneurs, then we are sure that your company consumes your mind and your time. Most likely you have invested a great deal of your own money into your business, either directly or indirectly. It is not surprising, therefore, that you may find it hard to separate your own affairs from your business affairs.
Fortunately, there is a practical way to solve the problem you are facing. It comes down to creating two separate financial systems – one for your company, and one for yourself.
For your company:
Start by opening a separate bank account for the company
This will make it much easier for you to physically separate and manage your personal spending money from the money of your business. For money that is received for the company (for example money from the clients), you should arrange it to be deposited directly into a company account so that it does not get mixed up with your own personal money. For spending, get a card for this account, or a cheque book, and always make company related-purchases directly out of this account. This way you will not end up spending your own money on company-related purchases.
Create a budget for the business
Establish a budget for the expected expenses of the company. Be sure to include items such as your salary, the salary of the other employees, unavoidable business expenses like administration, rent, rates, electricity, travel, computer and hardware costs, maintenance and reserve funds for unforeseen expenses. If you do this, you can keep track of overspending or underspending for the company. It also helps to to oversee that you are not spending more money on the company than you should, and in response to this, that you are not utilizing your personal money to make up for company overspending.
You can find an example of a basic company budget here
Record all incoming and outgoing transactions for your business
To keep track of the inflows and outflows according to the budget, make sure you keep a record of every single company related purchase that has been made, as well as all payments the company has received. Be sure to include basic information about each transaction, such as the date it was made and a short description of what the transaction was for. These basic bookkeeping steps are crucial for a successful business. This record can even be done in a simple excel sheet.
Hire an accountant
An accountant can help supervise your bookkeeping and ensure that your financial records are created and kept clear and concise. In some countries, you are legally obliged to have an accountant, as well as to have annual audits of your accounts.
Check out the Ye! country pages to learn more about accounting practices in your country.
Tip: do not leave cash in your pockets
This may seem like a strange tip – but believe us, it will be very helpful! When you spend money for your company, do not keep the change in your pocket if you can avoid it. Put it away immediately (you can have a money box for the company) otherwise you may end up spending it on personal items (a delicious meal perhaps?) and may possibly confuse your expenditures.
Create your own personal budget:
In the same way that you should create a budget for your business, we recommend that you make a budget for yourself and your personal finances also. In this budget you can plan for your personal spending. For example house rent, food, clothes, car payments, etc. This will help you plan for your future expenses and keep track of the payments you’ve already made. You can also keep a record of your personal transactions to see where you can make changes to your spending habits.
We will soon be creating more resources which address the issues of personal financial management.
As you can see, it just takes a few steps to separate your company finances from your personal finances. Creating separate financial systems is very important if you want to avoid your company facing financial trouble and bankruptcy.
Start by making the changes that you can right now! It is easier than it seems.
Sacred Makotore is a finance guru from Zimbabwe studying for her Master’s degree. She is a contributing member to the Ye! Community Blog.