I often work with a lot of owners who have the same difficulties with their personal accounting as they do with business accounting. Setting up separate business and personal bank accounts gives you a bird?s eye view of where your money goes. This is a good thing for your business and your lifestyle. Seeing how quickly travel and other expenses add up will help curb your spending and stay on top of financial responsibilities.
Consider the nature of your business before selecting a business account. For instance, retail businesses sell a product, so they?re going to have different types of expenses than service-oriented businesses. An accountant will help you choose the right type of bank account and set up a balance sheet properly.
A balance sheet can definitely help you understand how strong your current financial position is. It is used to account for everything you owe money on, from tax payments to employee vacation days. It will have an asset and liability side, and the equity is the net of those two. The asset side includes bank accounts, vehicles, computers and accrual- or cash-based expenses. You also have to factor in any loans that you have on equipment and any outstanding bills you have, in order to see if you have enough cash to cover your overall debts and liabilities.
A balance gives you a gauge of where you are at any given point. Just recently one of my clients told me she set up a separate bank account to throw all of her sales and income tax into, because she was having a tough time tracking it all in one account. I suggested to her that she set up a liability account for sales tax. This way, rather than dropping it all into a separate bank account at the end of every month, she could run a balance sheet to see how much she owed, compare that to her bank balance and immediately know how much was available to her.
Another client of mine says she knows nothing about finance, so she drops it all on my desk and asks, ?Can you just deal with this? I can?t.? We keep her books up to date so she understands her profitability, but what she doesn?t understand is where her money goes. We give her a percentage of what she owes in taxes every month to show how her much is available.
This same client also wanted help with her personal finances, so we started tracking all of her expenses. We asked her if she knew how much she was spending on clothes and travel every month. Her response was ?Wow! I had no idea.? This client didn?t have a budget for herself. By organizing her business and personal banking with balance sheets, we?ve been able to show her where her money goes so she can set a loose budget. While this client wasn?t thrilled to have less money available, she was happy to know she wasn?t overspending.
Managing a business and personal bank account involves more than making deposits and withdrawals. An accountant will ensure that you have the right type of account and that the balance sheets make sense. It is vital for everyone to see where their money is going and how much is available at any given time.
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