When we start out in business there are some big decisions to make when it comes to how we set up – sole trader, company, partnership, trust? It can be overwhelming when all we want to do is just get out there and do our thing.

So for many women in business I connect with, they are carrying over their financial set-up from the start of their business. This means juggling their personal finances and business finances in one account.

I’m a strong advocate for separating these out. Here are 3 reasons why:

1. It gives your money a purpose

For all income received in your business, it’s important that you’re purposeful about where it’s going. It’s about separating it into different groups, such as:

  • Paying yourself a salary – which includes Superannuation
  • Setting aside your tax obligation – Pay As You Go (PAYG) tax for yourself and your income tax for your business, plus GST if you’re registered
  • Expenses – separating the variable and the regular expenses allows you to have a closer eye on what you’re paying out
  • Emergency fund – 3 months of expenses covered for downtimes
  • Profits – making sure you can see the rewards of your work

 

2. Easier management of your finances

If all your money is sitting in one bank account when tax time rolls around it can be a nightmare trying to sort everything out. Understanding what a work-related expense is compared to a private one is usually something best left to the experts – your accountant. Having to pay them to sort it all out is a drain on your expenses you don’t need. Consider setting up a cloud-based accounting system for your business such as Xero, it will save even more time for you in the long run.

 

3. You can get an eye on your cashflow

As the saying goes, in business 

Revenue is vanity

Profit is sanity

Cashflow is King (we prefer to say Queen!)

Once you’ve set up your accounts so that your money has a purpose and you are aware of where your money is going, you can develop an easy to track cash flow system. This is important to help you overcome the ‘feast and famine’ way of working and helps you make savvy financial decisions in your business. Don’t have a system yet for cash flow management? I’ve created a Cashflow Planner for you, which you can get access to here.