Do you ever struggle to have enough money to pay your tax bill when it’s due?
For this to happen, you need to manage your money wisely. One simple and effective technique is to set up three different bank accounts. Each has a separate purpose and it allows you to effectively manage your money.
By setting these up and using them wisely, you will always have enough money to do the things that you want to do in your business. So let’s explore what they are…
1) Operating account
The first account you’ll need is your operating account. Your operating account is where you run the day to day operations of your business. It’s where you:
- Receive your income
- Pay your bill
- Pay your wages etc
Basically, all your day to day cash inflows and outflows go through this account. Most businesses should have one of these accounts already.
2) Tax Account
The second account that you’ll need is your tax account. Your tax account is where you start putting money aside for tax. Each week or each month, start to put money aside money which will cover your obligations such as:
- Good and Services Tax (GST)
- Pay As You Go Tax (PAYG)
- Income tax; and so on
A big problem for many businesses is that they spend their tax money because it is in their bank account. By separating it from your operating account you will be less likely to spend it. You’ll start to manage your business based on what is left in the account.
3) Profit Account
Finally, the third account you’ll need is a profit account. This is where you put money aside for the profits of your business. So as your business makes profit, simply put some of that money aside. Again, if you leave it in your operating account, you’ll spend it. But if you put it aside in your profit account, you’ll then be able to choose what you spend your profits on. This could be things like:
- Pay out dividends
- Buy new assets for your business
- Reinvest in the growth of your business
The beauty of starting to manage your money this way you’ll be able to start to choose where you spend your profits, rather than it just getting absorbed in the day to day operations.
So just to recap, to manage your money wisely in business, set up three accounts:
- Operating account
- Tax account
- Profit account.
Set these up today and by putting the money aside in each of these, you’ll find that you’ll have the money that you’ll need to run your business successfully.