Do you mix personal finances with your business finances?

 Separating personal and company or office accounts is the first step for anyone who is starting a new business and wants to structure the financial. It even seems that it is something obvious – “do not mix the accounts and have a clear division between personal life and work” –, but we observe that, especially at the beginning of a company, when investments and disbursements are made, many get lost. That's when it's time to stop and evaluate. Otherwise, financial problems can arise and undoubtedly getting started right costs less time and money than fixing the mistake later.

I always say that finance is the heart of any business, and if it is not structured you may have losses, defaults, losses and your income will suffer consequences. If you have the feeling that the years go by and the work is increasing, but the profit is not growing in the same proportion, some bottleneck exists and it is usually in the financial one.

Therefore, it is important to be clear that every business needs to organize its cash flow, with the aim of evaluating everything that comes in and goes out in the month. In addition, it is essential to have a working capital to pay the expenses. From there, with this cash, it is possible to make a financial assessment.

What sustains the business is not revenue, but profit, which is the amount billed, minus the costs and expenses that you commit to generate revenue. But imagine mixing personal and business finances. There is no doubt that the problem will come, whether in the short, medium or long term.

Generally, the way you handle personal finances is the way you handle your business finances. In the context of law firms, the partners' view of the pro labore and withdrawal of fees is often different. However, what everyone needs to keep in mind is that the better the bank, the better the partners. When there is no good financial management, partners can take from the firm a value that harms or suffocates the structure or, then, they can end up leaving very large amounts in reserve and unnecessarily.

During years of consulting and managing the finance department in companies and offices, I saw many businesses decline due to the partners' indiscipline with financial management. The fact is that the way a partner deals with numbers in his personal life directly impacts the business.

There's no secret: separating finances is crucial for an accurate financial analysis and also to know if the results are growing and if the cash flow is healthy. For this, the ideal is that you and the other partners have a fixed monthly withdrawal.

practical tip

For those who are just starting out and still don't have a structured finance department, the tip is simple: list your expenses in a spreadsheet (it can be in Excel), as well as installments, credit card bills, fixed and variable expenses, and only then validate whether or not it is possible to make the minimum expected withdrawal. The old adage fits here: “the question is not how much you earn, it is how much you spend”.

Avoid management mistakes and seek financial advice to help your company!

Posted By: John Labunski