Ballooning expenses are every small business owners’ worst nightmare. You may be having a killer year, but if your expenses aren’t in check those extra sales won’t really give you any advantage . For many business owners, especially those with relatively small and new businesses, tracking expenses can be a challenge – in the initial stages of growing a business, plenty of owners will use personal assets to keep their overheads low. And so, while we’re talking here about business expenses, we’re also saying that you need robust personal expense tracking.
Keeping personal and business assets separate
Using personal assets for your business is a great way to keep your expenses low if your venture is still in the launch phase. But as the business grows,having a clear divide between your business and personal assets becomes more important. This will serve two major purposes; it will shield your personal assets from the corporate world and make it easier for your business to file taxes and receive tax deductions as well as business credit.
The importance of separating business and personal expenses
Personal finance management is a crucial skill that will benefit both your personal and professional life. After all, the quality of our personal life determines how we perform at work.
If you cannot manage your personal finances correctly, you may end up dipping into your business funds to address a personal need. Conversely, you may have to rely on personal funds if you don’t properly handle your business expenditure. Or you may buy things for the business while doing personal shopping – a good example of this is if you’re a baker, and buy items for cakes for a customer while you’re doing the family shop at the supermarket. Or you sell something to a customer in your shop and then give that money to your child to buy an ice cream.
Mixing up business and personal money in this way can make accounting quite difficult. If you don’t develop a solid personal finance management strategy, you may fall down a rabbit hole of using your personal funds to keep your business afloat or using business funds for personal use. At a minimum, this means you don’t really know how well your business is doing – and may lead to significant legal, operational, and tax problems as your business grows.
Robust Expense Tracking
Ideally, you should develop a robust expense tracking strategy while the business is in its infancy. If you’re running your business part-time while also having another job, knowing what the real expenses of your business are is vital to helping you decide whether to quit your day job and be a full-time entrepreneur. Getting good expense tracking organised now, while your business is small, will give you a solid framework to rely on as the business grows and your personal fortunes change with it. Your strategy should encompass income, spending, saving, investing, and emergency protection. Focusing on expense tracking coupled with saving and investing will allow your personal fortune to grow and give you a safety net for when times are bad.
You will also be less stressed if you know you have enough funds to cover an emergency or sudden expense. This will improve the quality of your home life as well as your productivity, meaning your business will also benefit from personal finance management. Not to mention how important these expense tracking and finance management skills will be as your business grows.
Lucy is designed to help businesses like yours
Lucy enables you to create an account for each aspect of your life, each with its own prepaid Lucy MasterCard. Give each account a name, and choose what you want printed on the card. Each account even has its own virtual bank account number and PayNow QR code, so your customers can pay you into your business account. And it’s free! No minimum balance, no monthly fee.