Mixing business and personal money will kill your enterprise

I walked into one of my client’s office slowly trying to control my anger; promising myself to state my case firmly but with civil calmness and composure regardless of the response I get.
I supplied goods to the client last December but he is yet to pay to date.

The director was not in so I was received by the accountant who is also the chief administrator.

At first I was agitated by her rather unapologetic way of handling my case, but after she poured out a tirade of frustrations she was going through and the general low morale of her team, I sympathised with her.

She told me that despite the harsh work environment, the business was good and being a retail venture all their customers pay upfront.

However, the company was unable to pay suppliers, salaries and other bills on time due to factors only her boss, the business owner, can explain.

“My boss takes most of the money either for personal use or presumably to fund his other businesses. Most of the time he is forced to look for money elsewhere to pay bills when they fall due.
“At times he borrows from friends or Shylocks when things get really thick,” she said.

From what I gathered, there was no distinction between the business owner and the business as far as money was concerned.

This is one of the most common and costliest business mistakes entrepreneurs make. The cardinal rule in business is to separate business money from personal funds. Every business owner should have a personal bank and business bank account and keep the two separate.

They should pay themselves a monthly salary and withdraw profits in a structured way.

However, most entrepreneurs — from kiosk owners to family enterprises — treat their businesses like personal ATMs. They run to them every time they need cash.

Even those who have personal and business accounts make the suicidal mistake of using the two interchangeably.

As a matter of fact bills — such as school fees, donations and entertainment — should not be paid from the business account unless provided for in the remuneration structure.

Failure to separate personal money from business cash is one of the major causes of business stagnation and failure.

It causes confusion, cash flow problems and uncontrolled use of business funds.

Most cash flow problems in business are caused by owners moving cash from the ventures to personal use.

Paying yourself a regular salary commensurate with your input is the first step towards ensuring a healthy cash flow.

It also instills discipline on the part of the owner, which is key to overall success of the business.