Being an entrepreneur is all about risk management and the biggest gamble is on your money. Either you lose it all or make high profits. Often the owner or entrepreneur as we call them invests a substantial upfront amount to establish the business on firm grounds and it is very easy to blur the lines between company expenses and personal expenditure. An entrepreneur needs to have a command on the different disciplines and facets on business and its development and strive to safeguard his finances to keep matters simple and profitable in the long run. Manage your personal finances and learn to save and plan from your college days, often the time when the business idea is born.
- Open up a separate bank account for your company needs
One of the most straight-forward and simple ways of keeping your personal and company finances separate is to maintain separate accounts. This way neither of the cash will get mixed up and create confusion as to what is to be spent where. Tax reductions will also apply on both accounts this way and you can evaluate your net income and cash outflows in a more convenient manner this way. All your income should be deposited here separately and bills too paid from the company account.
- Set boundaries and limits
Set a minimum salary for yourself which you will give to yourself every month and record it as an expense in your business account. This will help you quantitatively keep track of how much you are spending on your personal needs. Have a good accounting system in place to help you with that. You can always take advice and guidance from those who are already into the world of business and have survived gallantly. Pre-plan the proportion of your personal savings that you intend to re-invest in your business and also keep track of any personal drawings that you make from your company account. Evaluate your business needs and market value time and again and invest wisely, only so much that it generates a decent ROI.
Although it may be at your discretion to use the funds generated as you wish it is important that you understand that all business profits cannot be treated as your personal income and you do not want to create a highly risky environment for yourself by misusing business funds. Self-control and management is the key to success here.
- Build your business credit
Having a good credibility and market value is a great way to keep your personal and business finances separate. More importantly, in the eyes of the legal system, it is very important to draw a clear line between your personal finances and your company funds so that your personal assets are safe from seizure in times of an emergency. Building your credit score as a reputable firm will not only boost your lending power but keep you distinguished in front of the court system and the IRS. Having a separate business account helps your business to establish a profitable image that it able to pay all its liabilities with their current account balance.
- Avoid any controversies by making it official.
A prudent and sure fire way to protecting your personal liability is to declare a separate legal entity for your organization in the form of an S Corp or limited liability company (LLC). Plan out the ideal business model that will work for your business and assess all the factors at play such as the number of staff that you are going to recruit and your financial plan for instance. Figure out with them which option is most feasible for you. By establishing a business entity you will be securing your personal finances by giving them liability protection which can protect your personal financial position in case of any emergency or business upheavals.
Today’s business are at an advantage as they are surrounded by a technologically advanced environment that makes expense tracking not a very cumbersome task and allows you to manage them categorically. Even if you have started your business on sole proprietorship and you are liable to no one, you are accountable to yourself. You are going to sabotage your own interest if you do not keep your expenses separate in the form of tax penalties and legal impacts.
Author of this guest blog is Barney Whistance.