Separate Business & Personal Money?

The bulk of my clients are working directly for themselves.  They are the company or ‘talent’—be they real estate agents, coaches, accountants, lawyers, artists, or some other sole proprietor. A crucial part of that situation is that there are two distinct piles of money that we (yes, I’m one of those types, too) all need to deal with: Business Money and Personal Money.

Let’s explore some of the challenges and pitfalls with having these two distinct money entities, and some thoughts on how to cope with those challenges.  Here are three possibilities to look at.

1). What happens when you keep the business and personal money together, and treat it the same? This one ends up being messy, ugly, and way too complicated.  It is guaranteed to not only drive your tax person crazy, but to cost you bundles of money, time, and energy, on both the business and personal side.  Frankly it’s an avoidance tactic that will make things much more difficult.  And if you do this you miss one of the really great things about money.  By mushing everything together you miss being able to see what is happening with it.  “Where does it all go?”  “Why can’t I ever get ahead?”  Judgments and nagging voices in your head abound!  Bottom line: this is not a sustainable way to go.

2). What happens when you keep the business and personal money separate, yet still treat them the same?  This option is slightly better than the last one.  At least the taxes are easier.  There is however a subtler and yet bigger issue at play when you do this.  It ALL becomes about you personally!  When you have to tell someone your rates it’s about you instead of what you will do for them.  It’s hard enough to keep what we do from who we are internally without getting the money mixed up in there.  And an even more fascinating thing that I learned in my many years as a CFO: Business Money and Personal Money have different perspectives and scale.  They run on different criteria.  Business is all about growing itself or Return on investment (ROI).  My question was always “what is this expense going to get us as a company?”  And under that was, “will thing be better?” and “will we be more profitable/successful?” Personal money decisions often have a more emotion-based component:  “Will I feel better?”  “Will I be safer, more secure?”  “Will others like or appreciate me?”  Can you see how murky and expensive it can be when we kludge these together?  Those different criteria lead to different choices and result.  

3). What happens when you keep the business and personal money separate, and treat them that way?  I’m sure it’s no surprise to you that this option is the one I strongly suggest!  I’ve been practicing it for much of my life, all of the times I was running a business—which has included not only my coaching practice, but an electronic payment processing start-up (doesn’t that just sound techie!) and a radio station.  Keeping the money separate allowed me, among other things, to see the business as an ‘entity’ separate from me. I’ve always had these conversations with myself about: “What would the business want?” “What would it say?”  “What would make it more solid, and effective?”  Similar questions, yet from a different perspective than the Personal Money questions.  By keeping it all separate you can see what each ‘entity’ has to tell you.  You have clearer information, which will create more effective actions, and better results, both in your business and personal life.

Give it a try.  See what new ways of thinking are available.  Notice that once you get things separate between your business money and personal money—both in your accounting for them and in the way you think about them—you will be simultaneously more relaxed and in control.  A result worth working toward, for sure!

Ka-ching

Shell Tain, the Untangler

I’d love to hear about what you discover about your own business and personal money workings and ideas. Give me a call at  503-258-1630 or leave a comment.

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