Do you have a separate business bank account and/ or credit card?
How do you keep all the expenses for your business separate from your personal expenses?
I highly recommend that as standard practice you have separate accounts for the following:
- a separate working account – where all your payments go in and are paid out of
- a separate credit card for your business
- an account for saving for your “Buffer Balance” or “Emergency Fund” – this is (at least) the amount to run your business for 3 months
- a Profit account – where you regularly allocate a % of your revenue
- a separate account to save for your taxes
When you separate out your finances you know where everything is coming in and going out and nothing gets missed.
Let me tell you about Brenda. I met Brenda a few years ago when she and her husband came to me for assistance with their Bed & Breakfast business.
They had a number of different issues to address and one of Brenda’s key problems was understanding how much it actually cost to run the B&B. After running the business for almost 2 years she still didn’t know: What were her total expenses?
I remember this particular conversation as if it were yesterday:
“How do you know how much you spend on the things you need every day – food and supplies etc?” I asked.
“Well, I go to the supermarket and buy what I need. When I get home I need a cup of tea so I make that and I sit down with the supermarket receipt and a blue pen and I tick all the things which are the B & B, and then I add them up and write that amount on the receipt and put it in a box.”
Whoa Brenda! That’s a lot of hard work.😵
“I’ll bet that takes a while to go through the supermarket list, does it?” I asked.
“Oh it takes ages and if I don’t do it straight away, I get confused about what’s what.”
“What are the other items on the supermarket receipt?” I asked.
“Mostly personal things for Robert and me.”
“How do you pay for this?” I asked.
“We pay for everything out of our credit card, so we can keep track.”
Right now maybe you are feeling about as surprised as I was feeling at the time? This certainly didn’t seem the most effective way to track expenses.
Would it not make more sense to just do completely separate shopping? Save figuring things out afterwards. Even put the things through the checkout separately.**
Would it not make sense to have a separate credit card, just for business expenses? So much easier to see at a glance how much you are actually spending.
What I see on a regular basis – especially a business that starts gradually – there are not many transactions early on, and so the new business owner just uses their personal account, and at the end of the month or quarter they figure out which expenses are personal and which business.
This is not really the best way to do things. Very quickly there are more transactions every week and it becomes messy, messy, messy.
Please don’t be like Brenda.
Separate your accounts and keep a separate credit card and/ or bank account for your business. You’ll be glad you did when it comes to end of year and preparing your tax return, end of quarter and completing your BAS.
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