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.

Turn Your Ideas into Income (With IMPACT©)

“Good ideas are not adopted automatically.

They must be driven into practice with courageous patience.”

~ Hyman Rickover

     How many times have you had ideas churning in your head…little ones; big ones; dreams; goals; intentions; projects? How many times have you acted on those ideas? Even more telling, how much income have you realized from your ideas? What stops you? What challenges you?

     There are a plethora of books, seminars and programs on creativity and how to get ideas. Yet once you have them, how do you organize your thoughts and make sense of them to determine which ones to pursue? How do you communicate your ideas and convince people to act on them? How do you determine your own actions? Which ideas are your “money ideas”?

     You typically want your ideas to have an impact whether they are for an invention, a solution to a problem, an easier or more efficient way to do something, a change to a process, the next book or movie premise, a way to better establish a relationship, or a suggestion for working smarter rather than harder. I define a methodology for organizing, communicating, selling, and acting on ideas as a process I designate IMPACT^©, detailed in my book Hey, That’s My Idea! . Let me overview this process that takes you “from idea to implementation” so that you turn your ideas and suggestions into income and being impactful.

     IMPACT^© is my mnemonic that helps you recall the six stages you navigate to take your ideas from mind to money and matter. This diagram visually represents the sequence of thoughts and actions for you to follow to organize, document, communicate, and encourage action on your ideas.

The IMPACT^© process comprises six stages:

I - Initiate your idea.

Choose your “money idea” with import.
Apply critical and creative thinking to develop it.
Capture your thoughts.

M - Mold your message.

Take inventory of reasons, data, and facts – ask questions for more details.

Edit them down to their essence.

Organize the elements for persuasion.

Clear them up, write them down for visual perspective.

P - Plot your strategy.

 Use sales strategies to “sell your idea” (even if it is not for sale).

Pace yourself: before, during, and after.

A - Attention…command It.

Consider your audience’s norms.

Capture their attention in a way to which they’ll respond.

C - Communicate for action.

Listen purposefully.

Use positive verbal and nonverbal techniques.

Integrate effective presentation skills.

T - Terminate assertively.

Tell ‘em what you want; make your call for action.

Make the tone commensurate to the request.

Be gracious and grateful.

     Let’s explore each stage in a bit more depth. For the record, I use “idea”, “suggestion”, and “thoughts” interchangeably to indicate the “stuff that’s in your head”.

Initiate your idea.

     This first stage of the IMPACT^© process is where you examine your ideas and determine the one on which you will focus your energies this time. Capture your other ideas so that you don’t lose them, yet choose one with the most import to the time, situation, and target audience on which to focus.  Apply critical and creative thinking techniques to develop your chosen idea. Once you experience the IMPACT^© process you will be able to return to your other ideas and repeat the process.

Mold your message.

     This second stage is where you do a “ideastorm”—a transfer of everything you can think of and learn through research that relates to your idea—from your head and disparate notes, into the documentation of your choice (paper or electronic) so that your idea is physically in one place. It must be highly visual so that you “see what you’ve been thinking”. Then use proven organizational patterns to sort and shape the bits and pieces of your idea to see it more clearly.

Plot your strategy.

     This third stage is where you fine-tune your organized idea. Plot your implementation action strategy so that you effectively communicate and persuade other people to accept and act on your idea. Create your sales strategy to figuratively “sell your idea” (even if it is not literally for sale). Work out how you will present your idea to your target audiences.

Attention…command It.

     The first three stages of the IMPACT^© process involve thinking, planning, organizing, and writing—so not sexy, yet necessary before you implement a strategy. Legendary Quarterback and Hall-of-Famer Roger Staubach said that spectacular achievements are usually preceded by unspectacular preparation. The first IMPACT^© stages are the unspectacular preparation for communicating and implementing your idea. The last three stages are your ACTion ones.

     This fourth stage is where you fully develop your communications strategies and start presenting your idea. Research your audience to determine how your idea best meets their needs. Use effective presentation techniques to capture your audience’s attention and interest them in your idea.  Communicate with authority to command respect, and return focus to your idea when discussion goes off on a tangent.

Communicate for action.

     This fifth stage is a seamless continuation of the previous one where you hone your persuasion and presentation techniques. Employ positive verbal and nonverbal communication skills. Listen purposefully. React appropriately to challenges and questions. Persuade your audience with your messages, reasoning, and public speaking skills.

Terminate assertively.

     This sixth stage is where you “seal the deal”—make your call to put your idea into action. Present an action plan and schedule next moves. Involve your audience in your plans and get commitments, with deadlines. Be specific. Communicate the pay-off for acting on your idea. Make your tone commensurate to your request. Express your appreciation. Remain in control of your idea by steering the course for its implementation.

Increase your income IMPACT^©-fully: stop churning and start earning

     Anyone can have a great idea. Yet, the leap from inspiration to implementation is too wide for many to make. The gap between idea and income is even wider for so many. By following the IMPACT^© process, the giant leap becomes manageable because you have tools that help you stop churning and start earning. As an entrepreneur; professional; person seeking to experience the “next chapter” in your life; a leader...implementing a system, with tools and resources, to move your thoughts and projects from your head to intentional action enables you to increase your income and make an impact on your bottom line, your family, your community, and even the world. You turn your dreams into dollars, your concepts into cash, and your ideas into income and impact!

 

About the Author:

Sylvia Henderson, Implementation Strategist, moves individuals and teams to get out of their heads and into action with their ideas for profit and purpose. Clients call her the “Maven of Implementation”. Using her design thinking process called IMPACT^©, Sylvia helps you build a foundation and develop strategies for, take action on, and be accountable to your ideas. Sylvia is the author of multiple books including Hey, That's My Idea! How to Speak Up & Get Recognized for What You Know and Think, and hosts a cable TV program and radio show on implementing ideas. Turn your dreams into dollars, concepts into cash, and ideas into impact with Sylvia’s expertise & experience to guide and encourage you. Meet Sylvia at the  Unlimited You Weekend, April 10- 12, 2015, Baltimore, MD. www.hwhn.org for details.