Entrepreneurs often mix personal and business money. This leads to cash gaps and even personal and business collapse. How to avoid such situations?
Own a business - it sounds tempting for many of us at the stage of business ideas. At this stage many of us make our first mistake, which later leads to cash gaps, problems with the tax office and, as a result, to the closure of the business. This mistake is treating personal budget and business budget as one budget.
Of course, at the initial stage, most business owners invest their money in the start. And when the business begins to bring profit, they just calmly use the proceeds as a source for personal expenses. And as soon as there is no longer enough working capital, they again invest out of their own pocket. And the circle is closed. If you get an outside perspective on this situation: the business is developing, and the revenue is excellent, and the owner works 24/7 - but there is always not enough money. It is impossible to accurately calculate the profitability of a business. And if it is also a family business, where not one, but several family members constantly mix their money with the business money, withdrawing and investing back, then the collapse of such a business is not far off.
There are other situations as well. For example, all the received proceeds are immediately withdrawn and, in order for the money to always work, are placed on a personal deposit with daily interest. This mixes personal and professional income. It would seem that everything is fine: the money is not dead weight, the interest is growing. But what part of these percentages is personal, and what part is received from the business - it is no longer clear.
Why is such a mixture of cash flows dangerous for a person and for his business?
Because the owner cannot objectively assess the profitability of his business.
How to avoid mistakes at the very beginning of your business journey, since you still have to invest in business development? Yes, and you also want to enjoy the profits.
To avoid cash gaps, reduce uncontrolled spending, not to lose personal assets and ultimately not to go broke, it is better to follow a few simple rules:
Separate cash flows (different accounts, cards)
Continuously maintain management records
Pay your own wages and dividends
Do not rely on the rest of the profits to meet personal needs.
Should you need any help My Best CFO Team is always happy to help.
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