“A lot of time, I use to wonder where my business money often go to, in most case I make sales but I do not know how I spend this money” those were the words of Peel the store owner close to my house. He usually finds it hard to say this is his profit in his business and wonders where the money often go to.
The money is gone because you’ve either spent it, bought some assets and then sold them, or bought some assets and kept them.
Money do not disappear from your bank account, it only moves to change hands. The bad things about a lot of entrepreneur is they do not really think what they are doing when they are spending their hard earned money. They use their money, then sit back to analyze what they have done with the money after which they feel the money wasn’t used properly and shouldn’t have finished as at the time they were calculating.
In business, there is a difference between distributing business cash and spending of money in business. Buying an SUV from a business money or paying for your new home from the business money without a prior salary to you from the business is called spending, do not mistake it for distribution of business cash. Distributing business cash is using funds from business for business purposes.
As an entrepreneur, there are a lot of things that take business cash away from the business account that you need to consider before and after paying yourself your salary and start to wonder where the business money went to. A few of them are;
Taxes:
Once you have a business (Registered business), you are liable to taxes. A lot of entrepreneurs love to pay this last. They want to use the money for other things like grow the business more, in some cases luxury trips and relaxation. Before you do any of this, you have to set the taxes aside. The advantage of paying taxes on time is that you are not left with bad option for delaying. Delaying taxes till after expenditures have been made and there is little or no liquid cash available often leads to borrowing money or selling assets for lesser amount than they were bought to pay the tax. Before ascertaining your company’s money after sales or a business transaction, first get tax out of it.
DEBT
The same way you can build wealth, so can you build debt. You can’t build bad debt and expect to build wealth. So many business people believe in drawing money on line of credit. Thereby postponing the day to pay the debt. If you want to buy an equipment for business, I often advice to pay cash but of you can’t pay cash then you have to be sure the equipment will be bringing the business enough profit throughout when you will be paying using term debt.
Expenses Unforetold
This is very bad but inevitable in business. In other not to have unplanned expenses affect your cash-flow, it is advisable to have separate cash for unforeseen expenses. This can be called miscellaneous cash but it should be available else at the end of the year, you will keep asking how you spent your income.
Personal Use
This is something that affects most businesses either large or small. Spending a company’s fund is crippling the company. Using the company’s income to pay your vacation trips or to buy a new car is bad. You could use your salary, thereby leaving your business with enough funds to serve as a secure foundation.
- Key Point
- Always properly check where your business money is going into
- Always set taxes aside in separate accounts on a monthly or quarterly basis
- Try to get yourself and your business out of debt
