Managing Your Personal and Business Finances
The Guest Contributor section of the UEA Business Pulse hosts the opinions and thought pieces written by experts in various fields. Grace Makoko is a career banker with over 20 years of experience in banking in East Africa. She was gracious enough to write this article on managing personal and business finances.
It is common place for entrepreneurs — especially those in their early stage — to dip into their company’s finances for personal reasons and vice versa. However, as an entrepreneur and business owner, it is important that you separate your personal finances from your business finances. While this might sound daunting if you haven’t done this before, it is imperative for you to do this in order to get a more accurate picture of your business performance.
How To Do This
A good first step to achieve this vital separation would be to have a separate account for the company. This will help you keep track of the company activities and separate your personal transactions and family related expenditure from the company ones. It is important to bank all money received from your customers and any other proceeds from the company onto this account. Make all payments like rent, utilities, salaries, company related transport and accommodation costs, taxes, payments to suppliers, payments for licenses any marketing and advertising cost etc. from this same account. This account activity will come in handy when you are i) balancing the books, ii) tracking receipts of cash iii) tracking expenses, iv) getting your books of accounts audited v) seeking credit from your bankers vi) paying your taxes and filing of your tax returns vii)determining the profitability of your business venture, to mention a few benefits.
Having a separate account for the company will enhance transparency. It will also hopefully foster discipline regarding the financial affairs of the company which would not be possible if you commingle your personal finances with those of the company. It is also recommended that you pay yourself a salary and have these salary payments properly documented instead of dipping into the company finances for personal expenditures. Having this salary payment credited to your personal account would be great as this would help you track your personal expenditure better.
Monitoring your Business Account
The recommended account for a business is a current account. A current account is suitable for the day to day operations of the business while a savings account would be ideal for “growing” your money. Request for an account statement from you bank on a regular basis. The frequency of statements will depend on the size and complexity of your business. Weekly statements are recommended for a fairly active business and daily statements for the very active businesses that have multiple financial transactions. Scrutinize your bank statement and keep abreast of any changes in the bank’s tariffs. Speak up about any concerns you may have about charges wrongfully applied to your account. Seek clarification on transactions you don’t understand or don’t remember making or authorizing. Know the exact amount of every debit and credit that goes onto your account and what it relates to. People fail to catch unusual behavior on their account because of a lack of attention to detail; preferring to round off figures and use vague estimates for transactions that can very be easily verified if one spares the time to be vigilant. Always follow up on any outstanding items like reversals or refunds.
Having separate bank accounts will help you track your business performance, but it is helpful to have a more comprehensive accounting system in place. For many, dealing with the accounts while handling the daily operations of the business, fundraising and acquiring customers might be overwhelming. It would be helpful then to hire an Accountant or Bookkeeper to handle your finances. However, this comes at a cost not all businesses can bear. In these situations, there are a number of tools that can be used to track business income and expenses like QuickBooks, FreshBooks, GoDaddy Online Bookkeeping, Xero etc. Carefully select the tool that best suits your business needs and get comfortable using them. You need to have an overall view of your business cashflow, where your money is coming from, how much you have at any given time and where it is going. Select the method that works for you and adopt it to your business.
*Thank you Grace for taking the time to write this insightful article for us!
