How to keep business and family expenses separate

Successfully managing a solo business comes down to great planning. Here’s how to do it right

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Q. As a solo entrepreneur, I always seem to be using my personal credit card and/or line of credit to meet my business obligations. I don’t know what my income will be from one month to the next. My spouse is nervous about the creeping up of our joint line of credit. What do you suggest to keep my business money separate from my personal and family money?

A: Congratulations on your entrepreneur spirit! And your question is a very common area of concern to sole business owners like you. The key to success comes down to great planning and record keeping.

Start by reviewing your family expenses. What are the essential costs like shelter, food and transportation? What are the nice-to-have goals like travel, entertainment and dining out? Once you know your expenses and goals, you can determine what income you need. For instance, if your spouse/partner brings home net pay of $3,000 month and your family costs are $5,000 a month, then you need a net monthly income of $2,000 month from your business to make it all work.

Once you’ve figured out the monthly net amount your family needs to keep the household running, develop your business plan based on the amount you need to bring in as income for your family—in this case, $2,000 a month. So your company’s gross income from sales minus company expenses (HST, office supplies, etc.) should produce a number that will pay you about $2,000 net a month. If it doesn’t, you need to increase your sales/revenue until you hit your target. Note, that you should also ensure you have two separate bank accounts—one for personal/family use and one for business as well as separate credit cards, one for home and one for business expenses. This will make it easier to separate your home budget and your business budget, something the Canada Revenue Agency (CRA) likes to see should they need to do ask any questions.

So start to build your sales plan to generate enough sales (gross income) to pay all your base monthly costs every month to then give you the $2000-a-month you require.  You might be surprised by how much you need to sell but it will give you something to aim for to be in good financial shape.

Ask a Money Coach: Leave your question for Janet Gray »

Janet Gray is fee-for-service financial planner and money coach in Ottawa. She is also an Elder Planning Counsellor and Health Insurance specialist


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