3 ways to separate your business and personal expenses as a business owner
You just opened up your first business. All the money your business makes is yours, right?! I mean, why not? You can use the money for whatever you want. No one can tell you what to do with the money. Right?
Wrong. If this is your thinking, you’re on the fast track to a potential audit and massive headaches when tax season comes around. You must despise your accountant if you decide to run your life this way.
A business is a separate entity from you as the owner. Colluding funds by using business funds for personal expenses not only screws up your financial reports but can also be a flag for a potential IRS audit. You have no idea of the profitability of your business and no control over your personal funds. You can’t plan for retirement because you have no idea the difference between your business and personal money. Below are ways you can use to separate your business and personal expenses.
Mindset shift
Separate bank accounts
Separate business and personal budgets
Mindset Shift
As a business owner, I know you feel that the business is yours to do whatever with. But, you must consider the business as a separate entity with its own life cycle. You can’t see the business and you as one. The business has obligations to your vendors, customers, IRS, employees, and other partners. As an individual, you have obligations to yourself, your family, your hobbies, and the rest of your life. Yes, a tiny part of you works in the business, but it’s not the whole of you. This mindset shift is the most difficult thing I see my clients struggle with. Many small business owners start businesses to fulfill personal goals like buying a house, but now that business entity has more oversight (as a legal business). If you decide to apply for government grants or contracts, this separation is even more necessary because your financials will be under scrutiny.
Separate Bank Accounts
Separate personal and business bank accounts are the fastest way to separate your expenses. If your personal and business accounts are with the same bank, make sure you distinguish between the cards. I’ve had clients mistake a business debit/credit card for a personal one because they look the same. You can put a sticker or customize the background to do something noticeable. It’s fine if personal expenses happen infrequently; you can easily pay the business back if it is a mistake. If multiple personal expenses occur every month in the business account, then a conversation will need to be had to help reduce the occurrence. As the owner, if you aren’t on payroll and want to buy something personal, transfer the money from the business account to your personal. Then, that transfer will be classified as an owner’s draw on the balance sheet.
Separate Budgets
Having separate personal and business budgets will help solidify the differences in expenses in your mind. Having a personal budget will let you know how much you need in owner’s draw or payroll from the business each month to live your life. You need a business budget to understand how your business revenue is spent. At the beginning of your business, you’ll want to make enough net profit to pay yourself your breakeven monthly personal expenses.
It’s imperative that you quickly separate your personal expenses from the business. Any future business growth planning will be useless if your financials are inundated with your personal expenses. It will be hard initially, but this discipline is required from you as the business owner.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
The steps you need to take to transform your revenue management so you’re not leaving any money on the table.
You’re still sending out PDF invoices created in Word or Google Docs to your customers expecting payment, but how do you make sure they pay you on time? It’s not like you have a tracking system to know how many days your customers have left before payment is due. What about a collection policy for when customers are 30/60/90+ days past due? Who’s responsible for reaching out to your customers for payment? Have you ever done work and forgotten to send your invoice for payment after 1 month of service? Determining how often you receive payment is imperative to managing your cash flow and not feeling like you’re living paycheck to paycheck.
So, what can you do to transform your revenue management? Some of what I talk about today will seem like the same process as last week’s post on spend management. You’re correct; it is. Every process starts with documenting your current process, looking for where software can help automate some of the mundane tasks, and training relevant staff members on the new process and software. The one thing different this week is the monthly review of your Accounts Receivable (AR) Aging Report because you need to reduce how many days it takes for your company to receive its revenue.
Current Process
Update Process with Automation
Embed the new process into the company culture
Current Process
The first process of taking control of your revenue management is to document what you’re currently doing. Are you sporadically sending out invoices via email? Who’s keeping track of your customers, and who owes you? List everything you’re currently doing, and make sure to tag the employee responsible for each task. This lets you see where the company is falling short and how to improve your current process. Doing this before introducing any software will ensure the team knows exactly what the process is before adding software to an abysmal process. The software will amplify the problems you had before or add more stress to the team if the problems aren’t addressed.
Update Process with Automation
You can use software to send out your invoices, send payment reminders, receive payments online via ACH and credit cards, track who owes you on your AR Aging Report, and keep track of your customers. There’s no need to spend minutes or hours creating PDF invoices manually. That time could be spent on solving a more pertinent issue in your business. Business owners inevitably talk about the processing fees when I talk about using software to help collect customer payments. Your total processing fees will be less than the total you’ll spend trying to do everything manually. If processing fees are that big of an issue to you, then build it into your pricing.
Payment reminders can be automatically sent to each customer so they can be aware when they’re past due, and you, as the business owner, can see when a customer has viewed, opened, or paid the invoice immediately. Your accounting system, such as Quickbooks Online or dedicated revenue management software, can be used in conjunction with your current systems to provide an overall view of your revenue.
Embed the New Process into Company Culture
After implementing the new software, make sure the primary teams are experts on the new software. As a business, you must ensure that a dedicated person/team keeps track of your invoices and that all invoices are sent out promptly. The faster you send the invoices, the faster you get paid — hopefully. By embedding the new process into the company culture, you create one source of truth for all things revenue.
Revenue management is one of the most important things you can do for your business. If you can reduce the days sales are outstanding, you can replenish your cash just as fast. Managing your spend is one of the ways you can extend your cash runway, but if your revenue management is in chaos, you won’t have any cash to have a functioning business.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
Your business is growing, and you want to streamline your vendor and payroll operations. There are two types of people expenses: 1099 contractors and W2 employees. 1099 contractors are people or vendors you hire to help with a business problem. You can’t control how and when they do their job. You sign a contract with the contractor with an expected deliverable and hope to get the agreed-upon deliverable. A W2 employee is someone that you can control how and when they do their job. You pay their payroll taxes via your payroll system. They would also receive company benefits such as health care insurance and paid time off.
4 tools you can use to pay your contractors/vendors and employees:¹
W2 Employees & Contractors: Gusto and Justworks
Contractors/Vendors Only: Ramp and Melio
Gusto
Gusto is a payroll and HR platform for small to medium-sized businesses. It’s not free. Most payroll platforms are not free and have a monthly base cost plus a per-employee fee. I do not like dealing with the headaches that come with payroll, as there are many different rules and regulations based on where your employees live. Instead, I would outsource this to a system that will ensure all correct forms and taxes are paid and filed. Yes, you can do this yourself, but it’s best to focus your energy on what will grow the company rather than being bogged down by payroll and HR paperwork.
You can also get healthcare benefits through Gusto for your company. Gusto takes a week to implement if you’ve never had an employee before. It’ll take longer if you have historical payroll and employee information that needs to be entered to make sure everything looks right and the proper payroll taxes are being paid. It can also pay contractors, but I suggest using Ramp or Melio for better details and controls.
Justworks
Justworks Payroll is another payroll platform for small to medium-sized businesses. It’s not free, but it provides the same capabilities as Gusto and allows you to be set up within a week. The only downside is that it operates in fewer states than Gusto. Again, the system will ensure all correct forms and taxes are filed and paid. The difference between Justworks and Gusto is that Justworks has a more extensive payroll product, Justworks PEO, that will allow you access to better healthcare benefits for your team. So, if you want to transition to this product, you can start with Justworks. If you’re looking at costs, go with Gusto, as it’s less expensive on a monthly basis.
Ramp
I’ve discussed Ramp several times as my top option for paying your vendors and contractors. It’s a free system that allows you to pay your vendors via ACH, check, or card and create virtual/physical credit cards for your team. It also allows you to implement controls such as not allowing any bills to be paid unless a second person in the team approves the expense. It’s very easy to set up and can be used within three days. It takes three days because your account has to be approved to be on the system. As a business, you need at least $75K in your bank, as that’s how they calculate your card limit without requiring your personal credit score. If you don’t have this amount yet, you can use Melio to pay your vendors until you need business credit cards for your team.
Melio
Melio is a free system that allows you to pay your bills and contractors via ACH, card, or check. It also allows you to pay your international contractors with a transaction fee as well. It’s straightforward to set up and use from the first day. It syncs with Quickbooks Online, so all bills paid via Melio are already recorded in your financials. Before Quickbooks Online rolled out its native bill pay option, it partnered with Melio. It also allows you to implement approval workflows — making sure the right bills are getting paid and no bills are paid without the approval of a designated manager.
Choosing one tool from each category will solve all your operation needs when paying people. The great thing about these tools is that they integrate with your accounting system, such as Quickbooks Online. So, there will be no double work to ensure all payment transactions are recorded. They will also guarantee you collect the right forms from your vendors/contractors and employees. Nothing is more annoying than finding out you need a form from a vendor you stopped paying eight months ago. Now you must send the awkward email, hoping they respond with the requested form.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
Once you have been in business for a while, and your transaction level has increased from 2 per month to over 100 monthly transactions. Business has become more complicated, and it’s become harder to continue using free/low-cost tools to track your finances. You have a better idea of what metrics you want to track, so what tools will take you to that next level without breaking the bank?
QuickBooks Online
Ramp
Jirav
QuickBooks Online
Once you need to track transactions by locations, departments, and different fields, QuickBooks Online (QBO) is the natural next step. As long as everything is set up correctly at the beginning, you won’t need to ever move on from QBO unless you need something industry-specific, such as school finance, or you’re planning to have multiple subsidiaries and international locations, or you need to track inventory. It can spit out the basic financial reports you need — income statement, balance sheet, and cash flow statement.
Along with the basic reports, you can see those reports split out by the fields you’ve set, allowing you to see your financials deeper. If you want to connect your Google AdSense data to QBO, you can’t. You’ll still need a spreadsheet to triage all the data to get an overall view of your business related to your financials. Your financials will show you the total cost of online Ads for that month, but it won’t show you whether paid ads or referrals were your biggest factor for revenue growth that month. You can also get a discount via TechSoup if you’re a non-profit.
Ramp
You have contractors and vendors you have to pay. So far, you’ve been paying them as they land in your inbox. Ramp allows you to keep track of all vendor bills and schedule any payment via ACH or check. It will also help you collect all the vendor data you need to send out the 1099 forms the next year. Along with bill pay, you can also create virtual and physical cards for your employees or contractors with limits. It forces the assigned owner of the card to forward or text the receipt for the transaction. You can even create software-specific virtual cards to help you manage your subscriptions. It’s a great system that gives you control over your expenses with audit trails.
Jirav
You have QBO, and you’re using Ramp, which syncs with Quickbooks Online. What do you need Jirav for? Jirav is for the planning, budgeting, and forecasting side of your finance operations. Jirav brings all data from Quickbooks, the payroll system, and other data, such as Google AdSense, together for you to create dashboards and forecasts for the next month or year. Yes, you can continue to use spreadsheets for this, but if you’re spending too much time wrangling data together to create your management reports, this might be the solution you’re looking for. Spreadsheets are great for building your first budgets and forecasts, but over the years, you can automate some processes using software like Jirav.
Quickbooks Online becomes your base accounting software system, and other tools are synced. Ramp and Jirav can sync to or grab data from Quickbooks Online. The goal is not to have disparate systems that don’t talk to each other. Spreadsheets will never go away. There will be some times when you want to do a quick calculation or export the data into Excel to play with. That’s okay as long as you make sure you go back to your base systems. The software you implement should be nimble and advanced enough to give you the data you need without any stress. But not so advanced that you’re spending months on implementation training at this stage of the business.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
We are thrilled to extend our heartfelt congratulations to FroFessionals for being honored with the Committee’s Choice Award from the Austin Community Foundation’s Black Fund. This award is a testament to the unwavering dedication of FroFessionals in addressing the unique needs of black, brown, and biracial individuals with textured hair.
EGBI’s client, FroFessionals, are a subscription-based platform, connecting individuals with professionals and product vendors who understand and cater to the diverse needs of kinky, coily, curly, and mixed-textured hair. Recently (on February 13th, 2024) FroFessionals was awarded the Committee’s Choice Award through the Austin Community Foundation’s Black Fund (a beacon of support for black-led nonprofit organizations) and joined the ranks of other eminent, Austin Based Nonprofit Organizations such as Black Mamas ATX and Real Queens Fix Each Other’s Crowns. The awards ceremony, hosted by Hutson-Tillotson University, was a celebration of achievement and culture. FroFessionals’s recognition at this event underscores the impact they’ve had on their community and the importance of their mission.
Moreover, FroFessional intends to use their award to advance their mission of increasing access to quality, consistent, and culturally relevant mental health care for historically underserved members of BIPOC communities in the greater Austin area. A commendable mission that is guaranteed to create a further positive impact on their community.
We are proud to celebrate FroFessionals’ success and commitment to making a difference. Additionally, we look forward to seeing the continued positive impact FroFessionals will have on the community.
Congratulations, FroFessionals, on this well-deserved recognition, and we applaud your ongoing efforts to create positive change in our community!
A native Austinite, Debra Wissman first found St. Mark CDO as a parent when looking for a two-day program for her now college aged son! Debra later joined the staff as a teacher, and finally as director in January 2009. Debra earned a BA in Theology from Texas Lutheran University and began master’s level coursework in Counseling and Guidance at Texas State University. Prior to working at St. Mark CDO, Debra was the Director of Youth Ministry at Shepherd of the Hills Lutheran Church and then a full-time mom! Debra enjoys serving in ministry to the children and families of the preschool. Her greatest joy is serving the CDO in this capacity and looking forward to coming to “work” each day! Debra is married to Marc, and they have three sons aged 16, 18, and 20, and two dogs, Rocky and Willamena, aka Pebbles.
St. Mark Children’s Day Out has been a licensed childcare since 1993 and before that, it was a 1/2 day preschool open only 2 days a week. It is now open Monday-Thursday from 9 am to 1:30 pm September through May and then Tuesday and Thursday in June and July. It is closed in August.
Debra shares her experience as a client at EGBI.
Tell us a fun fact about yourself.
I toured St. Mark CDO with my son 19 years ago and I haven’t left! He will graduate from college in May 2024.
“We were assigned a business coach who helped us with everything from marketing to spreadsheets and was super supportive during the rebuilding after COVID.” Debra Wissman
How did you first find out about EGBI?
I was introduced to EGBI post COVID through Texas Workforce as we tried to re-build the school following COVID.
How did EGBI help your business? What service did you benefit from?
We were assigned a business coach who helped us with everything from marketing to spreadsheets and was super supportive during the rebuilding after COVID.
Why should people consider supporting an organization like EGBI?
It’s a new age of running a business post COVID and getting help in all areas of running a business is crucial! Support EGBI so that they can support businesses!
EGBI provides training, coaching, and support to aspiring and existing business owners who face barriers to growing a successful business. If you would like to support our efforts, please visit our website https://egbi.org/donate/.
