Part 1 | Your Money
In this module we are going to talk about your money and why it needs to be separated from your businesses money.
Personal vs. Business Money
We really want to be clear that there’s your business’ money, and then there’s your money, and it’s important to separate them out. If you don’t, then you are going to have all sorts of problems.
Here’s the rule—you must have a business account, and you must have a personal account, and they must be different. Period. We recommend they could even be in different banks. You must also start classifying every dollar in your life as either “business” or “personal”.
Many clients come to us feeling very out of control and unaware of how much money their business has. They feel broke all the time. They’ll ask, “Where’d all that money go? Why is it not all in my pocket?” Or they’ll keep taking their personal money and put it into the business to try and float the business.
The way you are going to start separating your money is by creating a salary for yourself that you pay yourself out of the business. None of your financials or profit margins mean anything until you’re paying yourself a salary.
If you’re an S Corporation, you want to make sure you’re paying yourself a reasonable salary. You want to cash that paycheck and pay your bills with that paycheck. This sounds basic, but so many entrepreneurs don’t do this.
One question we want you to consider is this: “How much do you want to make from your business?” It seems like an obvious question, but many entrepreneurs think that whatever the business makes is their money, when it’s not their money. It’s the business’ money.
(If you want to learn more about how to plan your revenue and also pull profit out for yourself personally, check out the Entrepreneurial Bookkeeping course.)
When you separate your money and decide your salary, you will start producing for yourself. This will give you so much more energy around wanting to make a better business that can produce even more for yourself.
Now, if one of your goals is to build wealth, we want to warn you against trying to do that with an exit plan. A lot of people say, “Well, this business isn’t producing any profit. This business isn’t helping me live the life that I want.” They think that when they sell it they’ll be able to relax and have plenty of money to live the life of their dreams.
The problem with this is that your business is completely dependent on you. And when you’re taking money from the business and everything is co-mingled, there’s nothing sellable about it. You have to be invested in developing the business as its own entity. It should exist in the world with or without you. Only then will it be sellable.
If you separate out everything and you are taking care of yourself in terms of your time and your money, you will be so much more available for your business. Then once you’ve created exactly what you want and you want to sell it, all the power to you.
Two Ways to Ruin Your Business
- You suck all of the profit out of it so it can’t grow
- You don’t pay any attention to your own personal finances and your business finances
As we continue in this course we will help you become more aware and pay attention to all aspects of your business.