Many entrepreneurs are familiar with a stressful situation when there is not enough money to run a business or to satisfy personal needs, especially if the business is just starting to develop. To raise a business, you have to take an inviolable stock from your own reserves or, conversely, withdraw funds from circulation for your own needs.
To leave constant transfusions and related stresses in the past, you need to learn how to properly separate personal finances from business money. This is also evidenced by Roman Titov, the head of Delta Capital, who believes that for a small entrepreneur, combining his own money and finances of an organization in one wallet is natural. However, at a certain stage, this habit has to be abandoned, as well as many other “mixes”: rights and obligations, personal relationships and relationships in the hierarchy, etc..
An entrepreneur who is not able to “divide” cannot “rule” and remains at the lowest level of the business community.
What to do for separation
Even a businessman who consciously comes to the idea of the need to separate personal money from business money, at first experiences difficulties, primarily psychological ones. But. When deciding to split the budget, it should be remembered that the end result of the efforts made will be the disappearance of the difficulties associated with the constant transfer of money from the business to the personal budget and vice versa.
According to Alexei Batylin, founder and CEO of Activity Group, it is extremely difficult for an entrepreneur to separate business money and personal finances. In particular, at the level of one’s own consciousness. But if you don’t do this, sooner or later such “general accounting” will turn into serious problems.
So, the first thing a businessman needs to do is to start following some rules:
1. Get a percentage of company income
To separate personal money from business money, constantly withdraw a certain percentage of the firm’s income. A business will always require an injection of cash necessary for development, especially if the company is recently founded. However, it is worth remembering that the primary goal of creating any private enterprise is to make profit by its creator.
The withdrawal should be done with caution. According to Natalia Hot, a financial security, tax and optimization consultant, accountant, the ideal option is to separate the personal and what is in the business – paying salaries and dividends from the company. At the same time, you should remember the words of Yulia Solodyashkina, a financial coach, warning that you can never withdraw from a business without a strong need an amount greater than the size of your net profit. And do not touch the advances received! Transferring money from the “business compartment” to the “personal finance compartment” is better not chaotic, but periodically (for example, once a month or a quarter).
2. Refuse from the injection of own funds in the business
Try to minimize the infusion of own funds into entrepreneurship. Ideally, completely abandon investments, especially if the business is already hyped up. The ideal option is to attract the finance of third-party investors, through which the company will be developed.
But it’s worth remembering the words of Tatyana Khodanovich, Managing Director of Pharmedu, that it all depends on what arrangements you have with investors, if any. For the most part, personal money in a startup appears after breaking through the breakeven point. The owner at the stage of formation continuously invests additional funds, his own or investment.
3. Learn financial management
To effectively and legally separate personal money from business money, study financial management, which allows you to understand the theory of savings and gain the ability to manage money. The need to comprehend this science is emphasized by the head of the EnglishDom online school of English Maxim Sundalov, who argues that there is a clear distinction, where are the finances of the company and where is my personal money. This is all the usual financial management, which does not allow to mix business and personal.
4. Keep discipline
Personal money and business money require organization. That is why you must introduce strict discipline for the employees of the company and adhere to the established rules yourself. Many successful entrepreneurs do this, for example, Pavel Spichakov, managing partner of KIT and Bergus, who maintains that the company must have a budget of at least three months. And everyone is obliged to adhere to it. And the leader himself is above all. As a hired employee, I personally receive a salary in the same way as other employees of my companies, twice a month, and I can never ask for anything extra. I also report for gas for business trips, for business trips, like other employees, I hand over all receipts and tickets to accounting.
Another famous person, Dmitry Kibkalo, the founder of the Mosigra international board games network, has the same opinion, saying that if you want employees to not mix personal with public, you need to start with yourself. And be the ultimate pedant in these matters. I scrupulously write down all the expenses that I make as the head of the company, including the most insignificant ones. I can “protect” every penny, what exactly is it spent on.
Businessmen who decide to separate personal finances from business money should make it a habit to draw up two separate estimates: to control personal expenses and business. This is also evidenced by Kirill Mamatov, the founder of first-hr.ru, who believes that it is necessary to initially build two budgets for income and expenses.
One personal, to understand how much money we need for all our “Wishlist”. I emphasize that the budget of INCOME and expenses, otherwise many do the opposite – this is not necessary. We build a second budget for the company, where we put our money into the expenditure side, which the company we founded will pay us.
It is also worth following the advice of the founder of Russian America, the initiator of the Second Passport project, Yuri Mosh, and so that there is no temptation, make separate accounts for business and personal finances. I get clients’ payments on a business card, I pay taxes and salaries to employees from it, and other expenses are paid. And from it I pay myself a “salary” to my personal card.
Personal financial plan
A special tool for controlling personal cash receipts and outflows is a special estimate. It takes into account the needs of the entrepreneur. Acting as expenses, as well as current financial opportunities, the calculation of which is carried out on the basis of income received personally by a businessman, and not his company. The last item usually includes the manager’s salary, as well as dividends received from the company’s stake.
The formation of a personal plan consists of several stages:
1. Goal setting, their breakdown by categories of value and timing.
2. Analysis of current income. From the resulting figure, you should subtract the size of the monthly content, that is, money that goes away regardless of the performance of tasks.
3. Analysis of existing personal assets, that is, the “airbag” from which you can extract money in an emergency. Risk probability should also be calculated..
4. Cash flow forecasting. At this stage, both the possibility of an increase and the probability of a decrease are calculated..
The analysis will make it possible to get a clear picture of the available income, as well as find out what the funds are currently needed for..
Business plan
When drawing up a plan of activity and development of the company, adhere to clear standards. So, the document without fail takes into account:
• Credit burden on the enterprise;
• Overall profitability;
• Monthly cash flow;
• Formation of an “untouchable reserve”, which is withdrawn in the event of a financial crisis or, if necessary, the payment of fines or penalties.
By compiled documents, you can constantly monitor the situation. However, they should be regularly updated, replacing outdated information with new facts..
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One common way to separate personal and business finances is by opening separate bank accounts for each. This allows you to track and manage your expenses more effectively. Additionally, maintaining clear and accurate records of your income and expenses can help you differentiate between personal and business transactions. Have you considered any other methods or tips to keep personal and business finances separate?
What are some practical strategies or methods to effectively distinguish and separate personal finances from business finances? I’m interested in learning how to avoid mingling the two and ensure clear boundaries, especially in terms of managing expenses, tracking income, and tax reporting. Any tips or insights would be greatly appreciated!