Keep your finances in order
December 8, 2011 No CommentsA common mistake of first-time entrepreneurs is their failure to separate their personal funds from their business funds.
Personal funds are what is used for living expenses. These include such big ticket items as rent or amortization, food, and transportation including payments for vehicles. Business funds are the moneys used to keep a business in operation.
In a perfect world, the twain should never meet. But there are certain expenses that can cover both. A car used to deliver products may be the same car used to go out on dates, shopping and simply driving around. A cell phone or landline may be used for business and pleasure. The same is true for a PC.
Until the online store owner can set up a separate office, he or she should allot a fixed percentage of the expenses for home separate from business. The monthly utility bills, for example, should come from the business income. The percentage allotted is to be determined by use.
The new entrepreneur may know how much a product costs, how much his mark up is, and how much is spent to deliver the product to the client. But the fixed expenses are usually forgotten, and this may lead to him not knowing whether his business is operating at a profit or loss.
A knowledge of basic accounting helps. The entrepreneur can either study book keeping, or hire an outsider to maintain the records of his business. There is even software that guide new businessmen on the ins and outs of maintaining financial records.
If the business succeeds, keeping record books becomes all the more important. Without the proper books, the tax collector may cause the entrepreneur unwanted headaches.
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