Genex #5 – Managing Money
Welcome to the fifth article in our Business Ownership Series
In this article, I’m going to cover the skill of managing money.
This is without doubt the most common challenge that business owners face. In fact in our surveys of over 10000 business owners, 41% of business owners say it is the #1 challenge that keeps them awake at night.
In my opinion and experience, the transition from employee to business owner in regards to money is one of the primary reasons this becomes a big issue.
As an employee, when you get paid into your bank account each month, generally this money is after tax.
As a sole trader or business owner, when you get paid by a client it is before tax and costs.
I ran into this issue in my first year in business. I didn’t know what money in my account was MINE. I didn’t really have a system in place for setting aside reserves or money for tax, and when I got to my first business tax return I ended up with a fairly big bill shock!
In managing money, there are three areas you need to be aware of. These are:
1. Money coming into the business
2. Money going out of the business
3. Recording and reporting these flows
One simple tip I was given, and will now pass onto you is to set up three bank accounts for your business. A trading account, an account for tax setasides and an account for reserves.
This simple action can help you understand how much money in the account is yours to run the business at any given time.
There are of course many other things you need to do, but this is a good and simple place to start.
Understanding your numbers is a key factor according to Amanda Fisher – author of Unscramble your Numbers – it’s a book I recommend for small business owners to have in your library. Read and understand it and you’ll be one step closer to success as a business owner.
For more information on my upcoming book – Generation Experience – or our programs and workshops for business owners – please visit www.silverandwise.org.au.
See you in the next article.