Handling your finances as an entrepreneur
It is advisable that you separate your personal and business finances
MANAGING your business' finances is similar to managing your personal finances. They both require discipline and having a long-term vision and plan. It is important that you do not get excited about the money coming into your business and advisable that you get someone to help you manage your financial commitments. Akhona Monakali, a financial advisor based in Bloemfontein, shares ways to handle your finances, as an entrepreneur.
SEPARATE PERSONAL AND BUSINESS FINANCES
Akhona says it is a good idea to keep your personal and business finances separate as it will give your business more credibility and a sense of legitimacy. In some cases, it may also help to reduce your personal liability should something go wrong with the business. It will also help you to be organised when it comes to paying your taxes, managing your bills and other payments.
“If your business were to close down today, would you still exist? Of course money for your personal needs would still need to be available. You need to start putting this money aside now and this doesn’t happen only when your business is making a lot of money. If you have a problem putting aside R1 000 today you will not be able to put away R1 million in the future,” says Akhona.
“A lot of entrepreneurs have found themselves penniless even after running a business for years. The business finances belong to the business. Your money is yours. Pay yourself. You can do this with a salary, dividend, bonus, drawings or a combination of things. You can start small and work your way up.”
KEEPING THE BALANCE
She says your personal life shouldn’t be in ruins while your business strives and vice versa.
“If you are running a business, it is very easy to get caught up in a lifestyle that is far from what you can afford. When you own a business, you have full access to the business’ bank account and nobody will stop you from using the money. Because of this accessibility, it is even more critical for entrepreneurs to work within a personal budget. Imagine running out of petrol money and your business account has hundreds of thousands in its account, you will obviously dip into the account,” says Akhona.
MEETING YOUR PERSONAL NEEDS
A lot of businesses have failed as a result of the owners using the business’s finances for their own personal goals.
Akhona advises that you think of ways your business can fund your goals without putting it at risk in the process.
“Your business financial goals should not be your personal financial goals because problems arise when you mix the two. Let’s say buying a car is one of your goals. Many people have used money from the business to fund their own personal goals only for the business to suffer. It is easy to put your business at risk if you don't have a personal budget. Do not carry the business' bank cards to prevent you from using the business' finances,” she says.
“Instead of you dipping into the business’ account, think about what the business needs for it to pay you enough to afford the things you want. For example, you may need to earn a salary of a certain amount to afford those things.”