Have you started or work at a small business? Do you spend the company’s money on your own expenses or purchases? It is easy to do! Businesses and their owners must separate themselves in order to succeed in the long run. Boundaries and limitations must be established and maintained to ensure a financially strong future for both yourself and your business.
The importance of erecting a ‘wall’ between owner and business with regards to money is orientated around the mindset of ownership. Some people think that just because “I can control the finances, I decide where to spend them” that this is a justification of personal needs. No your tech company didn’t need 2 boxes of doughnuts for you personally to take home; it needs wages, suppliers and rent paid to name a few expenses.
It can be easy to just “chuck it on the company card” instead of paying out of your pocket but managers will soon realise the impacts of such a decision. Over time small purchases will snowball into considerably larger ‘dents’ in the budget that can and will negatively impact the financial security of the company.
Accounting difficulty is an area of concern when mixing payments also; separating personal and business expenses to determine the most tax is returned is harder when the purchases are mixed. Lunch with clients may be overlooked when there are multiple other similar purchases that where bought personally.
Separation from owner to company ensures areas such as risk, are separated. If your business under a worst case scenario goes under, you are separated and cannot be financially liable.
Ways to ensure separation
1. Banking accounts should be created under a business account and payments for the business shouldn’t be done from your own personal account and vice versa. This is unless you are investing your own money into your business; adding capital to your businesses accounts should be done to fund and develop growth. Where at which point you can be paid back that amount.
2. Organisation may seem simple, but most small business owners tend to either accidently or not, mix personal and business bills and records. An organised filing system with the accounts being separated and prioritised may make all the difference for people trying to maintain their company finances.
3. Paying yourself a salary and not just pulling out money when you need it will make sure that official separation is guaranteed. Having a clear payment schedule will enable you as a manager you understand and maintain, a clear and manageable budget; which will allows from proper valuation of business to be attained and also make you simply forecast your own personal accounts and the businesses records far more simply.
An organised financial system either online or by way of physical paper storage will assist not only at tax time and end of the financial year but also through day to day processers. Owners and managers need to understand quickly the current and potential future standpoint for the business in order to make the most accurate decisions. Finance being one of the most important areas if not the most important needs to be taking with complete seriousness. This is why a clear distinction between owner and company should be incorporated from the beginning.
Enabling these simple steps and processes within your small business can build the hypothetical wall between yourself and your company; which will enable you as the manager or owner to confidently control your finances to establish a clear line. The boundary set will establish the clear distinction that both you and the tax office can easily understand while profiting in both financial and knowledgeable decisions as the company grows.