You have 0 items in your cart
True or False:
1. It is a fact of running a business that you will use your personal funds for business expenses.
2. It is a fact of running a business that you will use funds from your business for personal expenses.
If you said the first statement is true and the 2nd is false, you’re right! High five, baby! It’s true that we often use the cash in our pocket to pay for a business expense.
The alternative is pulling out our Business Debit Card, Credit Card (not because of debt, right, but because we get reward points with the purchase and pay it off in full each month), or because you didn’t want to lug around a 3 ring binder of business checks (what are those?! Kidding! We take checks!).
Sometimes, you’ll move money from your personal account into your business as an investment into your business. In the Accounting world, you’ll hear this called Owner’s Contribution or Owner’s Investment, or even the reclusive Contributing Capitol. It really doesn’t matter what it’s called, the goal is to show in your business that you are putting your own money into the business. It’s very easy to do this. Here’s how:
Keep the receipt if it was a cash transaction and record the transaction to the correct business category account (ex.: Meals & Entertainment, Fuel, Small Tools) with the money coming from Owners Investment, an equity account, showing that you personally contributed this expense. This is also important so you can make sure you’re getting a full picture of the amount of money being spent on the business, plus, if you want your business to (eventually) reimburse you for it, then you have to have record of it.
For giving money to your business as a personal investment, you’ll record the incoming cash received as Owners Investment as well.
Are you wondering why the you can’t do the reverse of using business funds for personal use?
The second statement is false because you don’t want your business records cluttered with personal transactions.
If you’re paying yourself, aka withdrawing money from your business account and moving it to your personal account, then this is your Salary or Wage and the amount will go to the Owner’s Draw account (you, the owner, is withdrawing the money from your business).
The trick is to not think of your business as your personal money. It isn’t. It’s not available for you to use to pay your living expenses, your mortgage and your lights. Yes, of course, you are working so you can live, but you have to have a system and a method of removing money from your business in a regular way. We pay ourselves the same way we would receive a paycheck from an employer.
I’ve seen clients that transfer money to their personal account on the fly 20 times a month with amounts varying from $10 to $1500. On a report for your business, this looks absurd, with the total Owner’s Draw looking like the profit for a year!
If you have a business, then treat it like a business. By being in control of your money, you will be able to pay yourself to live without using your business as your personal bank account.
I’m here to help you do just this.
