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View Full Version : How do you reinvest in your business?



vangogh
08-09-2008, 02:03 AM
I'm wondering how others here reinvest in their business.

Do you take a certain % of your revenue or profits and automatically move it to an account used solely for business?

Does all your revenue go into a business account and then you withdraw from it to pay yourself a set salary and to pay your other expenses.

Do your business and personal accounts ultimately get mixed?

Aaron Hats
08-09-2008, 12:35 PM
All money earned goes into the business account. I don't set a budget for reinvesting in the business but I do have a list of things I'd like to do so I prioritize that list and as money becomes available I work my way down the list. My business and personal accounts never mix. I think that's asking for trouble.

Aaron

vangogh
08-09-2008, 12:51 PM
So you essentially withdraw from the account to pay yourself and when you need to make a purchase for the business and ideally are always keeping a positive cash flow in the business account.

For me the accounts get mixed to a degree, but mostly because nearly 100% of the money that comes into the business account is earmarked for me personally. Outside of a few things there isn't a lot of expenses in my business, though that has gone up a little bit with this forum.

Aaron Hats
08-09-2008, 01:12 PM
Yes, I'll just transfer money to my personal account when paying myself. Being in retail, a lot of customers (and family) will think that I pocket the money from any cash sales instead of recording it to the business. I explain that that will only hurt the business in the long run. If I want to get a loan or eventually sell the business how am I going to explain or prove that there are actually a $100,000 in sales that aren't recorded.

Aaron

vangogh
08-09-2008, 02:44 PM
I guess I really do the same thing then. For the most part all money goes into my business account and then I transfer to my personal account as needed. Some of my clients will pay by check at times, though and I tend to deposit them directly in the personal account, though I always record them in my billing software to keep track.

orion_joel
08-12-2008, 02:36 AM
Unfortunately my business and personal accounts get mixed completely. Though i do operate as a sole trader, so any business income in reality is also classed as personal income. Primarily this is for tax purposes at the moment, as it would only become a benefit to have a separate business account and structure if the business earned over $70K per year.

As for reinvestment, i spend what i have to spend on the business and just have the rest available in my personal account as may be needed, for business or personal expenses, which funny enough pretty much never exceed the income thankfully.

Spider
08-12-2008, 09:47 PM
...My business and personal accounts never mix. I think that's asking for trouble.This is a common enough belief - Joel even described the practice as 'unfortunate.' The business text book says never do it, but I don't see a problem if your accounting is efficient.

One time it really should never be done is when you have a fiduciary responsibility for other people's money - like Realtors holding a client's deposit.

My wife has a home-based business in which I participate. Her business and personal monies are very mixed, to the extent that a supermarket purchase will be part shop and part home. But our monthly bookkeeping exercise for the business has a place for 'Personal expenditure.' Just as business expenses are allocated to certain accounts, one of those accounts is marked Personal, and the monthly total of that column is her pay for the month.

This is not only easy and accurate, it provides as much analysis for personal expenditure as it does for business expenditure. So, we find it very useful.

vangogh
08-12-2008, 10:08 PM
Don't you have to be careful if your business entity is a corporation. I thought if you don't it's possible to lose some protection if you're not careful. For example if you make a business purchase with a personal check. Later you might not be able to claim it was a business purchase.

Spider
08-12-2008, 10:14 PM
Don't you have to be careful if your business entity is a corporation. I thought if you don't it's possible to lose some protection if you're not careful. For example if you make a business purchase with a personal check. Later you might not be able to claim it was a business purchase.I'll let the accountants answer that, but when I owned my own corporation I paid myself a regular salary along with everyone else. However, if one is incorporated oneself, I would expect different rules to apply.

vangogh
08-12-2008, 10:59 PM
I thought I had read it somewhere when I was first deciding on a business entity. It's been awhile though, so I could easily be remembering wrong. I think it was about being careful when you paid for something to determine whether you were paying as you or paying as an officer of the corporation so it was important to use the right check book or credit card.

Like I said it's been awhile so I could easily be in error.

orion_joel
08-13-2008, 01:56 AM
I don't really know all the fine accounting details of it, however i do know there needs to be separation in some respects, dependent upon your business structure.

I operate as a sole trader in other words i am my business, i have a trading name that is registered as a business name and i use Joel Brown T/AS Orion Networks. My business tax registration number is in my personal name and applies to the business name registered in my name. While i mix the money in the bank and and spend for both business and personal reasons from the account. At the end of the day i maintain financial records for both. I have MYOB Accounting which tracks all of the business transactions, and all the paperwork is separate, and i have little personal wise that has records needed.

Because of the business structure i have available to me the money is effectively my personal money anyway, even though it was income from business activities. If this makes sense.

On the other hand if i was operating a company, then i would need to look at maintaining records in the same way, however the actual cash and accounts would need to be maintained separate to my personal accounts. This is because the money earned by the company is actually the companies money and while i may own the company and it's assets without accounting for it leaving the company it needs to remain there.

Partially i think this is due to how a company is taxed, however as i said i am unsure of the exact little details of what or why.

vangogh
08-13-2008, 03:00 AM
That's how I'm set up too so while I do keep separate records I think it's ok if the business and personal accounts mix. The key is keeping the records separate.

I think with corporations you do need to be more careful or you can lose certain protections. I think it needs to be clear that in one case you're acting as you the person and in another case you're acting as an officer of the corporation. You personally don't get the corporate protection, which is why the distinction is important to make clear.

And again I'm going on memory here of things I read a few years back. I'm not 100% sure of the above, but I do feel confident what I'm saying is right.

orion_joel
08-13-2008, 05:00 AM
I believe one of the important distinctions also comes if you are operating as a company or under any other name then your own, you do need to maintain another bank account to deposit cheques made out to that business name or company.