So you’ve decided to set up your very own business – yay!! Such exciting times!! Although there is a dark side to taking the plunge into the world of self employment – the risk of the business going under (urgh!!). Now there are all sorts of reasons why great (and not so great) businesses rise and fall, however one of the most simple of tasks is regularly overlooked with start up small businesses and this never ceases to amaze me.
It’s really hard to keep track of your businesses financial position if all of your income and expenses are being run through your own personal account!
Get separate bank accounts for your business
Every business, even a sole trader business, should be treated separately from personal accounts and expenses and all of the businesses finances MUST be kept separate from personal expenses. If you have income from client sales coming into the very same bank account that your mortgage, kids school fees and weekly groceries come out of it is virtually impossible to really know where your business stands.
Use basic spreadsheets to track income coming in and expenses going out of your business
If you need a hand with setting up your business finances I can show you how to set up your income and expenses spreadsheet so that you can always see at a glance how your business is looking from a profit / loss and cashflow position. Even from the beginning, it’s great to to just be able to glance over to a dedicated bank account and see where you are currently financially sitting from a cashflow point of view.
When I first set up my bridal dressmaking business I was completely new to the business world, but I understood the important of separate accounts. From the very first day that I opened up for business I set up a separate bank account for all of my business day to day transactions and also allocated one of my credit cards with a nil balance to be my dedicated business credit card to be used ONLY for business purchases. It’s not all that expensive to open up an extra bank account and for those who don’t have a spare credit card to allocate for business expenses perhaps consider a VISA debit card linked to your savings / cheque account to allow you to use your businesses money for online purchases.
Supplementing your business income with personal funds
Of course from time to time, particularly with a new business you may need that all important cash injection in the form of money earned from a day job to fund advertising expenses etc, but treat that as a business loan and transfer a decided upon amount from your personal account to your “business account” instead of dipping directly into your personal savings account for business related expenses. It will end up being a lot easier to keep track of exactly how much you are spending and how much money you have as available income to reinvest or pay yourself. You may notice I used quotes around the words “business account” as for many new businesses they are not a partnership or a company (which would absolutely necessitate official business accounts, as in not personal accounts). The majority of new businesses are simply a sole traders and this means you do not need to approach your bank and set up an actual “business” account – just an additional personal account that is linked to all of your other accounts will do as taxation is a little different with sole traders.
Professional looking bank accounts
Do keep in mind though that if your customers are paying directly into your bank account, if you are using personal bank accounts they will be paying into accounts named after your name rather than your business, so for those who really want to keep their business looking separate to themselves then a proper business account with their business name as the account name is the better way to go.
Once your business and personal finances are run through separate accounts you can link them on internet banking to allow easy transfers and see all of your accounts at the one time (if they are all through the same institution). These can also then be linked with your online accounting software when it’s time to set that up for your business.