It Pays To Separate Your Private Purse From Your Business Purse

I have often been accused of allowing my Accounting and Business Management background to affect me in the way I reason, plan, and generally take decisions. One of the most popular being my often critical analysis of expenditures. They say those who have accounting background are stingy. Awww. That’s not fair !

Well, I have always argued that the quality of my actions and inactions, rather than my background, should be of top priority.

I once had an issue with a thriving business owner many years ago. It had to do with a 31-point memo I issued him upon his request. I actually did a business survey for him as he was experiencing a lull in his business. He was very impressed with all but one of my recommendations – the one that had to do with proper financial accountabilty.

I was of the strong opinion that one of the strongest enemy of his business growth, and the number one reason why his business was facing difficulties, was his refusal to strictly follow the “business entitity concept.” So many businesses, especially the SMEs (small and medium scale enterprises) are grappling with this problem.

This is an accounting concept that requires a business owner(s) to see himself as being different from the business, and that the Accountant should treat them as such. It sounds stupid for someone to tell you this. Isn’t it? Well, this is a major problem for countless businesses across the globe.

It was no surprise to me later when I heard that the company later developed serious financial problems, so much that they could not meet up with jobs given to them. Settling bills and payment of salaries became impossible and at the tail end of its crisis, the company went underground. It collapsed !

All the owner needed to do was to separate his business bank account/purse from personal bank account/purse. It also required strict recording of ALL financial transactions. That way, he would have been in constant touch with the realities of his business, and thus be able to know when he can and should not “deprive” the company of scarce business resources. It simply required financial discipline. Sadly, he was very comfortable with “the system that puts all the money on his table”.

What this translated to was for him to fix a particular amount that he can draw as salary. Salary ? Yep ! Every other money then belonged to the business – his business! Sounds odd, but financial discipline is one of the major secrets behind the enormous growth experienced by most businesses. And certainly, financial indiscipline or recklessnes is a major reason why so many businesses are experiencing stagnation, slow growth, fianancial stress and in extreme cases, business collapse!

So its a matter of choice ! Financial discipline Vs Financial indiscipline.

Thanks for your time.

 

Related posts :

Small businesses practices and the issues of stagnation and collapse

Decision making : The most far reaching function of a maanger 

Outsmart your competitors or they will kick you out of business

 

Posted from WordPress for BlackBerry.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s