by Sylvia Walker
Whether you’re starting a new business, or on your way to success, managing the money aspect can be tough. In the early stages, you are the business and lines are easily blurred between your personal and business finances. You may find yourself paying for business expenses from your personal bank account, or maybe buy some groceries or other personal items, and charging it to the business.
The problem is that if you don’t set separate boundaries and separate accounts, the more difficult life will be going forward. Record keeping becomes a nightmare, and as the business grows, it will be difficult to manage your cash flow, payroll, debtors and even calculated tax payable. You also will battle to gauge whether the business is growing or not.
If you have your own assets tied up with the business, this can threaten your personal financial security and even damage your credit record, amongst other things. Consider these important business reasons to keep money matters separate but equal:
1. Business credit
If you need credit or funding for your business, you may need to supply bank statements and cash flow projections as part of the application. If accurate records haven’t been kept, it won’t be a true reflection of your business, jeopardising your chances of securing credit. Borrowing money from the business for personal reasons can also easily get out of hand, impacting on the business cash flow.
2. Easier tax process
You can face some real challenges when it comes to doing your tax, as it may be difficult to track and offset business expenses if these were incurred through a personal bank account. You will also save so much time trying to separating business and personal expenses if you run your business through a separate bank account. Also, if the business is audited and requested to provide proof, it could be hard to justify these expenses if they were not paid by the business bank account.
3. Protect yourself and your assets
Set up the right legal structure for your business so that your personal assets are not at risk if something goes wrong with the business. It makes no sense to pour every last cent that you have into a business and run that risk. As a sole proprietor or in a partnership, you would be personally liable for any debt incurred by the business. If the business is registered as a company, it is a separate legal entity and responsible for its own debts. As an individual, you are a shareholder or employee, and will not be held liable for company debt in your personal capacity. If you have a closed corporation (CC), you are also not liable for the debts of the CC.
4. Showing that you mean business
Having a business bank account looks far more professional than using a personal bank account. Coupled to your registered business name and logo, it will make prospective clients more likely to buy from you. It will also build up a track record with creditors which could perhaps mean better rates and terms if you needed financing in future.
Do things right from the beginning. Pay yourself a salary instead of funding it from the business. As your business grows, it will become more complex. Manage your cash flow through a business bank account – all your transactions will be in one place and you may find specific features in a business bank account that you won’t get with a personal bank account. Speak to your bank about the options they offer and get it right from the word go!
Sylvia Walker is highly skilled and experienced in the financial services industry, having spent a large part of her career as a marketing manager for a blue-chip company. During this time, she worked closely with the media, conducting hundreds of presentations, doing radio and TV interviews and writing many articles for publications such as O, the Oprah magazine, Good Housekeeping / Goeie Huishouding, Sarie, The Mercury, Plus 50 and many others. She left the corporate world at the end of 2014 to pursue her interests further afield. She is also a published author. She contributed chapters on financial planning in Mary Ann Shearer’s Take Control the Natural Way and Nadia Bilchik and Lori Milner’s Own Your Space. She authored Dealing in Death – Ellen Pakkies and a Community’s Struggle with Tik and co-authored Steeped in Blood, the memoirs of Dr David Klatzow, which was shortlisted for the Alan Paton Award in 2011. She also co-authored and published Reflections for Old Mutual in 2013. Sylvia is currently a financial planner, writes articles, and conducts workshops on various aspects of financial literacy and planning. She is also the resident financial guru on the Cape Talk Early Breakfast Show, and is on air every Friday morning. Her latest book, SmartWoman, has just been published, and is a culmination of many years of experience in advising women on how to gain financial freedom and grow their wealth. SylviaWalker.co.za
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