One of the biggest struggles that business owners face is managing their finances. It can be so easy to lose track of funds, especially during a hard month or when financial forecasts need to change unexpectedly.
Time and time again, I’ve witnessed many small business owners forget even to consider the money they need for their tax, leaving them massively in the red come the end of the financial year with not enough put aside for payroll and profit.
To combat this, business owners need to implement practices to ensure this doesn’t happen.
When you have all of your money in one account, it can be almost impossible to have clarity over how much money you actually have. So, with my businesses seeing different costs and expenditures on a regular basis, I separate money into different business accounts that I like to think of as ‘honey pots’.
For each different function, there’s a different account. This allows me to have a much more unobstructed view of my outgoings and incomings, something that is vital once a business starts to grow.
The first account is the current account. Out of this comes all of the basic bills, including utilities, rent and any other regular standing orders. This is the account that’s important for keeping everything ticking over nicely. It’s always best to get those standing orders and direct debits set up so that you don’t have to think about it during the month.
A purchasing account is another crucial pot to have. Each manager has their own purchasing card, so on a weekly basis, they are allocated a certain amount of money. This allows them to purchase things that are needed without much aggravation. Keeping this pot separately also helps to clearly see how much is being spent by managers and exactly what we’ve spent for our cost of sales.
Keeping payroll separate again makes it easy to monitor and combats one of the biggest pitfalls many business owners experience: not putting aside enough money to pay staff. The payroll account works simply. Every week, a standing order filters a certain amount of money to the account, ensuring that there’s enough for all staff at the end of the month.
One of the biggest problems that people have with tax is that they treat it as their own money simply because it’s not an immediate, or monthly expense. Plenty of business owners have started spending their way through their allocated tax funds, not realising or considering it simply because they aren’t clear on their financial situation. That’s where the fourth pot comes in.
Each week, look at the sales and purchasing from the previous week and then put a percentage based on that into the tax account. This means that money can start to build in the pot, ensuring that there’s always enough for tax and PAYE at the end of every quarter. The calculation is always rough, so by the end of each tax period, you could get the satisfaction of a refund, or having funds let over.
At the end of every month, take a look at funds and consider if anything could be added to the secret ‘profit pot’. A percentage of the monthly profits should always be put away into another account to ensure there’s money available for urgent causes, but also for investing and rainy days.
By doing this, you’ll end up in an ideal situation where you can view your profit-building, ensuring that by the end of the year, your profit is still there and visible rather than disappearing throughout the year.
Keeping money in different pots can be vital in maintaining a clearness about different areas of spending.
However, keeping those five different accounts with one bank can still make it hard to be strict in differentiating the individual pots. Seeing it on a daily basis can often lead to transferring small chunks between each account, leaving you without profit or enough for payroll.
The benefit of having each account with different banks means those pots can be kept entirely separate and make the vital one’s untouchable. These untouchable accounts won’t be the ones you remember the numbers of off by heart or even visit regularly, but you should be aware of the standing orders, so you remain in control.
The Bottom Line
Managing your bank accounts doesn’t have to be complicated when you run a small business.
Honey pots can be your best friend and closest ally for tracking spending habits, managing incomings and giving peace of mind about finances. It may sound complex, but actually you have clarity and a clear idea of how much you have and for what.
A good amount of prep work will be needed to make sure all of the accounts are running smoothly and correctly, but the hard work will pay off ten-fold when avoiding potential mishaps down the line.
As a business owner, once you have your finances in a comfortable and organised manner, you will be left will much more time to focus on growing your business.