A Disaster?

[James Zaworski]

I remember reading from another post someone said a reson for a failing business is when people don't separate their buiness money from their personal accounts? Is this true? I'm confused because isn't the money you make from your buiness your income, so why shouldn't it go into your personal account?

 

[ehui]

A Disaster?

You need to open a business account and then "pay" yourself from that. If you just put everything into your personal account you have no record of what is what and you may spend money that you need to run your business with. I am sure there are many more reasons but that is the first thing that popped in my head.

 

[kelvin S]

yep, there are tons of reasons.  the biggest reason for me would be 3 simple but very scarey letters ---IRS.  hehehehe.  you really do have to keep the monies very separate.  when it comes to paying taxes and things like that, you have to show everything.   it's actually much easier to do business with a different account.  of course that is not a real official answer to your question....just my experience.  

 

[Savannah]

I ran another small business for a few years, and one piece of advice I got, early on, was to think about your business as a separate 'person'. آ It's really about boundaries and working out what your roles and responsibilities are. آ As other have said, it also makes it easy on yourself with regard to the legalities.The tricky part is to separate out how you relate to the business, because you have several different roles.You 'own' the business, because you started it, and invested your own money in it, so you are an OWNER/SHAREHOLDER.You 'manage' the business, because you decide things like where it will operate, what its policies will be, who its clients will be, what services it will offer, so you are a MANAGER.You are an employee of the business, because you provide services to clients, and you get paid wages by the business, so you are a THERAPIST/EMPLOYEE.So there is the business, there is you, and you have several different jobs, working for the business. آ If you think of it like that, the different activities won't interfere with each other as much. آ When you are being a therapist, and working in the room with a client, you can leave all the manager stuff at the door. آ The manager stuff belongs to the business, and needs to be sorted out by the manager, not by you as a therapist. آ You see the idea I'm sure.At the start of the business, you (as a shareholder) invest some money in your business (as a separate person), so that your business can buy a table, supplies, etc - all the things that your business needs.  In return, you get to own a share (100% maybe) of the business.  Some of this investment might be a loan to the business, that you expect to be paid back, with or without interest.The clients come to your business for a service, and they pay money to your business for the service. آ Your business can then start saving up to pay you back for that initial loan.Your business employs you as a therapist (and maybe other people too, in time) to provide services, and so once a month, your business pays you some wages for the services you have provided. آ Your wages might be fixed each month, or might be per hour. آ At first, your wages might be 'whatever is left after expenses and taxes' but this is not a good state of affairs, and having a regular way of being paid is much healthier for the business and you.Your business employs you as a manager (or maybe someone else as well, to help out from time to time) to organise supplies and location, find clients, manage the paperwork, etc. آ Your business should be paying you some wages as a manager too, for sorting out all these things, because these are separate from the wages you get for seeing each client.That way, when a client gives your business $50, your business will put some aside for rent, some for replacing equipment as it wears out, some for supplies, some for taxes, some for paying you back your loan, and some for your wages for providing a great service. آ You can see whether the business is successful or not by looking at the money flowing into, and out of, the business. آ You can easily see whether your business needs to raise or lower its prices, market to more or less clients, bring in another therapist to help out, etc. آ  You can also easily see whether you are benifitting personally from providing services to the business - how much wages is your business paying you, and how quickly is it paying your loan back to you?If you take money from your clients, direct into your own bank account, then it could all get taxed as your personal income. آ If you keep it separate, then your business is allowed to pay for eveything it needs BEFORE the taxman gets their hands on it, so your business can pay less in tax than you personally. آ At least that's the way it works in most countries.I'm not sure about tips/gratuities - I think they are separate from the business, and they are just a gift from the client to you. آ By the way, most businesses like to pay an accountant to know about all these sort of things. آ That way, the person managing the business (you) can keep it legal and clean, and the therapist (you) can stick to what you know best in the room (sueforum.xxx massage therapy).All this might sound a bit formal and corporate, and you might think that you don't want to have 'a business' in between you and your clients. آ The point is, if you think of the business as a separate person, you don't need to carry the business's problems around with you. آ You can leave them as the business's problems, rather than feeling they are your personal problems. آ  Having hassles getting credit card payments processed? آ Not sure how to market to a new group of clients? آ These are the business's problems, and the manager needs to sort them out during 'management time'. آ Got a difficult client with a problem you can't get to grips with? آ This is the business's problem, and the therapist needs to sort it out during 'therapy/reflective time'. آ Just my thoughts. آ Running a business on your own is hard enough, and I found that thinking of things like this actually helps to focus on excellent service, without getting overwhelmed by the annoying trivia of meeting capitalism head-on.

 

[WWE Bragging Rights]

Oh my Jay...  That was the most perfect answer to such a mistifying guestion... I think that you have just helped so many of us in more ways than you know!Thank you,  :-*

 

[Ashwin]

Jay, I wholeheartedly agree on your approach.   My question: Is there a specific perceneforum.xxxe you pay yourself off the top?  Financial advisors always tell us to "pay ourselves first" but I'm curious how much?   10%?  20%?

 

[jnmedrano2004]

Well, my massage business is very new, and I haven't paid myself anything yet.  I finished college in Sept, and have not yet really started to market my service, outside of people who already know me.  I have some other work that covers the bills at the moment.I do plan to pay myself, though, even though I'll only be working at MT part-time.  In my budget, once I get the number of clients I want, about 45% of the company's income will be available for distribution to myself and the taxman.  If I pay myself most of this in wages, there shouldn't be much tax for the company to pay, so I reckon, roughly, 40% of the money that comes from clients will come my way, personally.  I will then need to pay personal income tax on those earnings though, of course.So that's in my ideal budget world.In my previous business, my company took in quite a lot more money,  and I did things a bit differently.  I started by paying myself, and I took out the absolute minimum that I needed to live on, like Pete said above.  That way, the company got to keep most of the money.  The company's accountant suggested this, because here in the UK, companies pay a lot less tax on income then people do.  By leaving the money in the company, I didn't have to pay over the tax that I would have to if I gave myself bigger wages.  After doing this for a couple years, I ended up with a company with lots of money in the bank, so that it could keep on paying wages to me during the quiet periods, when there was no work, or when I decided to stop working and do training instead.  That's how I managed to afford the college fees to retrain as an MT!  

 

[katelin]

A Disaster?

Aralia, that is correct, here in the US. But I do believe Jay is right, most other countries don't tax you on the tips you receive.

 

[EnigMA]

A Disaster?

I stand corrected then.

 

[VitaminWaterGuy]

A Disaster?

I think I must not have been clear in what I said.  I didn't mean tips are tax free, just that they are personal income, rather than business income (as far as I know).  I'd be happy to be corrected.