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Are You Stealing From Your Business?

The Executive’s Guide to Carpet Cleaning Part I: FINANCES

Notes from Joe: Stealing from the Business

Separating Personal & Business Finances:
Do you have your personal and business finances separated? Do you maintain different bank accounts for personal transactions and business transactions? Are you paying yourself a fair and consistent wage?

All too often, new owner-operators respond to these questions with a sheepish “no.” Instead, they’re buying lunch from the cash collected from this morning’s job. They’re instructing customers to make out checks to them personally. They’re paying their vendors with personal debit or credit cards. And at the end of the month, they look at whatever is left over in their account and call it “personal income. They’re not bad people. And there are many ways in which even the most disciplined can falter. They just have bad financial management. For countless reasons, this is a very bad business practice, and a big reason why many carpet cleaning businesses fail.

Let’s start with personal income. When you separate your finances, you are forced to decide how you are going to pay yourself. Your time is worth something to be sure, but when you just take what you need every month, you’re stealing from the business. Funny thing about expenses– they tend to be exactly equal to the amount of cash available. I once coached a single owner/operator who averaged $550 an invoice, worked 45 jobs a month, and spent every dime on . . . “stuff.” Not really a problem if that’s your business model, but he wanted to grow. He had dreams of getting off the truck and spending more time with his family. But because he had direct access to his business cash, his personal expenses were out of control. You (and your family/partners) must decide what your wage should be. The amount is not nearly as important as the process.

The task of payroll is not an easy thing to learn. You have to understand how to do taxes, withholdings, and perhaps commission calculations. You may also have to deal with questions about hourly or salaried pay structure and even payday schedule considerations. It’s a lot to take in. But the fact is, you’re never going to learn how to navigate these issues unless you do it. Putting yourself on the “payroll” will help reduce your learning curve. If you mess it up, it’s your cash.

You’ll be glad you got the practice in once you’re managing employees. You can see how essential learning payroll is when you remember that the only reason your employees come to work is to get paid. It’s especially important to have a good grasp on payroll if you’re considering paying technicians on commissions. I’m not saying the rates have to be the same–your base salary could be much higher, for instance–it’s the business process that you want to iron out.

Don’t “forget” about the tax man. When you fail to separate your personal and business finances, every dollar you bring in is potential taxable income. When you fail to separate your personal and business finances, every dollar you bring in is potential taxable income. No, that was not a typo. It’s that important. When you blur the line between personal and business finances, the burden of proof on what is not “business income” falls on you. Not keeping records does not protect you from tax evasion. On the contrary, keeping records and following the advice of a good accountant will.

As you start learning how to have better financial habits, you’ll mess up. You’ll slip up here and there, and you’ll create headaches for whoever does your year-end accounting. That’s okay. Because when you record it, you can make it right, and you’ll always know exactly where you stand. It’s only under full light that your business will flourish.

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