The Major Mistake You’re Making with Personal and Business Money

If you have a business or a side hustle you want to turn into a business, then let’s talk about a major money mistake that happens often and how to avoid it. Revenue from a business is a great way to rake in more income or the path to living life on your own terms. Perhaps you’re selling a product or offering services. It’s been hard work, many sleepless nights, and skipped outing with friends, but now you’re bringing in revenue. Great! Here is where many start to make this major yet common mistake with their money.

Whether you started the business to supplement income from your primary job or you’re full-time working your business, you may be using some money from your personal account to purchase things for the business and using business funds to handle personal expenses. You’re likely using personal money or income to fund the business anyway right, especially as a new entrepreneur. You’re the first investor. I know I was my first investor. I started my business with personal savings, but I avoided a major mistake when doing this and I want you to avoid it too or correct it if you’re already doing it.The major mistake is mixing your personal money with your business money. Here is why this is a big mistake and can cost you money later.

1) You can’t show positive cash flow. If you’re consistently mixing your personal funds with your business income to make business and personal purchases, it’s hard to show positive cash flow into your business. You won’t be able to properly assess the health of your business and adjust your strategy to ensure continuous revenue and growth. This looks very sloppy and high risk to investors, so they’ll want no part of it. You have to be able to see exactly how much revenue is coming in and the amount of expenses the business has. You should know the exact dollar amount of how much it takes to run your business every month. Are you making that? What’s your profit margin? Will you have enough floater money for your slow months?

2) You’ll pay more in taxes. The IRS will think you have a hobby not a business that means money lost as they deny legitimate deductions. They will only allow deductions if you can clearly show that the expenses were for business. You don’t want the nightmare at tax time of sorting through old receipts and combing through bank statements trying to determine if something was a real business or a personal expense. Definitely not.

How to AVOID this:
1) Have separate bank accounts. You should have separate savings and checking accounts for your business. Only use the business account for business expenses and only use your personal account for personal expenses. It looks more professional, you will look like a real business owner if the business name is on the check or debit card. The money can be clearly tracked and the IRS is less likely to audit you or deny deductions. One of the first things I did after officially filing my paperwork was to go to a bank and start a business checking account. I felt so official once I got the debit card. I kept looking at my business name on it and smiling.

2) Pay yourself a salary. If you’re thinking but the whole reason I started this business is to supplement my income, no worries. You will be cutting yourself a check like an employee. You own the business so simply write yourself a check or transfer the money from your business checking account to your personal checking account. Start off with however much you need $25, $300, $3,000. Just be sure not to go overboard. Leave funds in the business to cover operating costs at minimum.

3) Create separate budgets.  Design a personal budget that is completely separate from your business budget. Of course include your salary line item and if you give funds to your business every month include a business line item as well. Also, account for the salary and income in your business budget. Budgets will help you see what your operating costs are for the business and operating costs for your household. You can then make sure those aforementioned line items make sense.

4) Use separate tracking software. You know I’m a big proponent of tracking your money. Track your personal and business income and spending, just don’t use the same account or system. You can use something like Excel and have separate files and folders for the business vs. personal funds. Or use accounting software such as Mint or Quicken for personal and Quickbooks or Xero for business funds. I like Mint for personal and Quickbooks for business.

About Dr. Maria James
Dr. James, The Money Scientist, has expertise with designing income management, debt management, and wealth strategies to help you live your best life. She is the founder of Pocket of Money, LLC and the creator of The Wealth Protocol™. Dr. James has also been a guest financial expert on ESSENCE, WEAA, Madame Noire and more. Connect with Dr. James in Baltimore, MD at the Unlimited You Weekend, April 10-12, 2015. Visit www.unlimitedactions.com for more details.

Are you set up for success in 2015?

You made it! 2014 is coming to a close in just 28 days! Some months went quickly and others, well they couldn't have ended fast enough. As I reflect I want to share with you how we can make 2015 ROCK! Setting clear goals for the next 90 days is great way to start.

Let’s plan to push hard in the final days of 2014 because it isn't over yet and having a remarkable 2015 starts right now.

Set Clear Goals….

Often we declare a desire to get fit, get out of debt, get more organized or finally start that business. Have you ever come up against real challenges in the process of bringing your desires into reality? Are there desires that you have which have remained an elusive dream? It's time to elevate every dream into a goal. What's the difference? The difference between a goal and a dream is a set lifeline. (Example: I will finish my business plan by Feb. 1, 2014.) It's clear, either you did or you didn't. As you set goals to help you reach your dreams, every action is bringing you closer to the reality you truly desire. Therefore, you are breathing life into creating your brilliant reality. In order to achieve your dreams you must set goals that breathe life into your very existence, which all connects back to your unique purpose in the world. So instead of a deadline set Lifelines as you move toward your dreams.

Have you ever said, “There isn’t enough time in the day”?  In reality we have the same about of time as billionaires, world class athletes or your favorite 5 year old. Life isn’t about time-management. Can you really manage time? Rather, focus on managing what you do in the time that you have. Instead of setting large vague goals by the end of the year, start with goals you can accomplish within each quarter. There are 4 quarters in a year, comprised of 3 months each, which is roughly 90 days a quarter. Setting goals per quarter is not as intimidating as a whole year and allows you to push yourself. What's up for you in your next 90 days?

For every goal you set, make sure you’ve noted milestones along the path. A milestone reminds you that you’re on task to reaching the big goal. Sometimes we think we’re not hitting the mark because it doesn’t look the way we think it should. However, you won’t know unless you’ve created markers or milestones along the way. Think of it this way, this is not a sprint rather it’s more of a marathon. In every marathon, there are markers along the path. Those signs are a reminder that you may not have reached the finish line yet but you’re one more mile toward accomplishing your dream. At each mile, there is a crowd to cheer you on and each mile feels like a win. Too often we come closer and closer to our dream yet we don’t even know it because we haven’t taken the time to celebrate our small wins along the way. Celebrate your wins!

Start now!!! I’ve said this a few times already but it’s worth repeating. We all have dreams, yet you may have some negative chatter in your head saying you can’t do it. Or it’s too big and we sometimes give into that voice and say we’ll do it later. “I’ll start in January” is a favorite stall tactic. WHY?

Start now. You’ll never be less busy. There is no guarantee you’ll have enough money later. The only guarantee we have is NOW. Give yourself the gift of your dreams and start in the present. It may not be easy but you are worth it. Remember, success and failure are both products of your thoughts.  What are you thinking? What are you focused on? Remember set clear lifelines for your goals. Identify milestones in the beginning of the process and most importantly start now.

About the Author:

Sister Mothyna James-Brightful is a self proclaimed “Self Love Revolutionary”. She has spent the last decade empowering women and girls to live authentic lives. Sister Mothyna is the Visionary Director and Co-founder of Heal a Woman to Heal a Nation. Sister Mothyna is co-author of Because I am a Queen...100 Affirmations for Daily Living. Stay connected www.hwhn.org: Twitter @mothyna