by Andrea Travillian | Featured Contributor
I have worked with owners of growing businesses that are showing profit, but are still struggling to pay their personal bills.
How does that happen?
One reason that hurts both them and the business is that they pay for the business expenses out of their personal funds.
They may be traveling, they may be waiting for a payment to come in, or maybe they just did not have the right card with them. No matter what the cause, they end up using their own funds to cover company bills and then never get that money back from the company.
In order for you to stay financially healthy you need to ensure that the money you are spending from your personal accounts for your business is being accounted for and that you get paid back.
The following will help ensure you get your money back.
This is the easy step, because it should already be done! Make sure that you have company banking accounts that are separate from your personal accounts. Have a separate checking account, and separate debit/credit cards.
Having the right accounts will ensure that you are able to pay for your business expenses with business money.
Sometimes expenses can only be covered with cash. When this happens you need to have a process in place to ensure you get the funds back.
In order to do this you will want to file an employee expense report – just like you would if you worked for another company. An Excel expense reimbursement worksheet should be enough for most of your expenses. You can download these for free on the internet; just type in expense reimbursement sheet. I personally like the free templates available at Vertex42.
When you have expenses that you cover with your personal money simply fill out the form, specifically the date, what the expense was, how much it was, and then attach the receipt. Then when it is time for you or your bookkeeper to do the books you can add this in as an expense and cut a check to reimburse you the money.
Business is Short on Cash
There are times in a growing business that you just don’t have the cash flow to pay the business bills. If this is the case you will want to transfer personal funds into the business account and use the money from the business account. With this transfer you will also create an entry into your records to show the business owes you money.
This can be done as a payable to you as an employee, or as an equity contribution or as a loan. When the business is doing better you can then begin to take this money back out.
The exact structure of this entry in your books will depend on your company set-up. Talk with your bookkeeper or CPA about the right way to record transfers in for your business.
Time & Process Management
Finally you need to make sure all of this record keeping is actually happening. There is no point in having a system to mange this if you are not going to use the system.
You will want to set up a dedicated time each week to do your bookkeeping. You will also want a dedicated place to put receipts so that you can fill out the necessary paperwork.
By taking these steps you will ensure your business financials are accurate and that your personal funds don’t all end up in the business. Without accurate records for you business it is hard to manage your business and make educated decisions about revenues, expenses and profits. At the same time, you will ensure your personal money can come back out of the business and be used for your needs.
Andrea Travillian is a personal finance author, speaker and coach who specializes in helping business owners take control of their income. She has her MBA and undergraduate in finance and enjoys playing with retirement numbers! she writes at takeasmartstep.com