Are You “Borrowing” from Your Business?
Are you “borrowing” from your business by stripping it of profit every month?
If you are a sole trader, as many are online, it can be tempting and easy to believe that all the money your business makes is yours to spend. And, in a way, you’re correct. After all, it’s just YOU, no employees to pay and no one will know any different. Right?
By treating all your business earnings as your wage, you are depriving it of any future investment and a buffer when times are tougher.* Believe me, I’m speaking from personal experience, and the result is not pretty!
It’s tempting to see the things you WANT and think “The money’s in the business account, I can afford it….just this once!” It’s tempting to live to your means (or your business’s means).
By all means, pay yourself a decent amount each month…as much as you can, but your business should never become your personal cash register.
By “borrowing” from your business today you’re only investing in the here and now, usually on fripperies, “things”. By investing in your business today, you’re investing in your own (and your family’s) future.
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*Note: I am not an accountant, financial advisor or lawyer – I think that’s pretty obvious, but thought I’d better point it out. Make sure you get the relevant financial advice from a professional.
Hi Lisa
I think this is a great reminder to all Small Business operators. May I also add the necessity of setting aside money to pay your tax bill at the end of the year. It also too easy to spend “all” the income your business earns on investing in equipment or “things” and forgetting to put aside the tax man’s share. It is recommended that you set up a separate account for this purpose and put away money as you earn it to cover any bill you accumulate at the end of the year.
Thanks for a great post!
Kind regards
Hayley Solich
The Creaticians
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Lisa Reply:
June 26th, 2009 at 12:31 am
Absolutely, Hayley.
I have learned a lot of financial lessons the hard way over the years. When I first started as a radio presenter (self-employed) I took my financial advice from all the wrong people and ended up with a tax bill I couldn’t pay at the end of the first year! Not pretty!
Lisa
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