The Golden Rule of Running Your Business: Keep your personal and business spending separate
- Katrina Steffens
- Jul 27, 2023
- 2 min read
If you’re trying to run your business properly, it’s really important that you don’t use your business bank account as your personal cash cow. Let’s have a look at why this practice can really affect your business’s success and why having a very clear distinction between your personal and business finances is critical for your business.
The Temptation and Its Risks
Sure, it’s tempting, and let’s be honest, it’s rewarding to see a healthy bank account, but you shouldn’t use that as an excuse to use that extra money for personal spending.
I’ve seen it many times over the years where business owners have taken money from their business bank account when it looks like there’s “extra” money in there, only to find out later that they’ve overspent and don’t have enough money to pay their suppliers, or they don’t have any cash reserves to buy that next piece of equipment they really need.
The Reasons You Shouldn't Mix Business and Personal Finances
True cash position: When personal and business transactions get mixed together, it’s really difficult to know the true cash (asset) position of your business. This lack of clarity can lead to poor decision-making and affect your ability to accurately forecast and plan for the future.
Unclear cash flow: You’re muddying the waters, and it’s difficult to clearly see how much money is coming in from your customers and going out to suppliers. How can you tell what the true cash flow position of your business is when there’s other “stuff” in there?
Wasted time: Your bookkeeper should be able to spend time giving you insights to help you run your business, but instead, they’re spending unnecessary time recording your personal transactions.
Unknown personal financial situation: You don’t even know how much you're spending in your personal life because you’re taking money from multiple bank accounts.
Accurate decision-making: You can make much better decisions about your business when you have accurate information about your cash flow, customers and suppliers.
Preparing for uncertainty: You can never predict the unpredictable, so you need a healthy level of cash reserves to help you get through when times aren’t so great for your business. Does anyone remember COVID and what it did to a lot of businesses? Or what if you are sick and can’t work and generate income for your business?
A Professional Approach for Professional Results
If you treat your business finances professionally, you lay the foundation for a professionally run business.
The solution is simple. Have a business bank account (actually, have multiple bank accounts, as we’ll discuss in a separate blog). Have personal bank accounts. Don’t mix the two!!
Ready to streamline your finances and take control of your business? Contact our expert bookkeepers today to get started.