Seperating Business And Personal Expenses
By Paul Esajian on January 15, 2014
There is much more to becoming a successful investor than finding the right property or knowing how to break down a deal. When you are in business for yourself, there is not enough emphasis placed on the fact that you are really running a business. You may not consider yourself a numbers guy or be cut out for a desk job, but that doesn’t mean you shouldn’t know everything about your expenses and where your money is going. You don’t have to do all of the number crunching yourself, but you must have a firm grasp on how to separate your business and personal expenses.
There are many differences between a “traditional” job and one that allows you to create your own personal income, such as investing. In addition to creating your own hours and strategy, the method in which investors get paid is a new concept. It takes a while to get used to getting fewer checks. Ideally, those checks will start coming in more frequently the longer you are in the business.
It is not uncommon to spend more money than you actually have. What you need to realize is that every time you get a check at closing you need to separate money that needs to go back into your business and what you can take for yourself. It can be frustrating in the beginning to only walk away with a small portion of your profits, but if you want to keep your business going, you should put most of that money back into your business.
You need to delineate which expenses are for business and which are for personal affairs. It is a good idea to have a credit card solely dedicated to your business. This means no paying for family meals, rounds of golf or items from Home Depot that are not used for business. You will not be able to get an idea of your total expenses or bottom line if you combine your expenses. Not only will this hurt your business, but you may have a tough time explaining your expenses come tax time.
It can be very frustrating to only walk with 10-20% of your profits on your first couple of deals. You may feel that you worked for this money and you should be able to enjoy some of the fruits of your labor. This can get you in trouble quickly when you work for yourself. You need to make sure you have reserves in place and take care of any balances owed before you can pay yourself. If you want your business to grow, you need to make some sacrifices when you are just starting out and be disciplined with your money as your business grows.
Most new investors are not great with their money. Don’t feel bad if you fall into this category. Talk to an accountant and listen take their advice.