Separate Personal Finance from your Business

Separate Personal Finance from your Business


I have been running The Hope Factory for over a decade, and the entrepreneur programmes we have run, have provided valuable insight into the challenges faced by emerging entrepreneurs.  Challenges I, myself have faced in building my organisation. Regardless of the varying types of businesses that entrepreneurs operate, the challenges that they face remain the same. One such challenge in the startup phase is separating their personal finances from that of their business, a predicament I am all too familiar with.

The Hope Factory started in a Garage with no startup capital. I spoke at a Women’s Day conference and got volunteers to assist and the first R3000 cost I took off my credit card. We used the ‘Boot strap’ method, and basically spent what we had before we had it, which was the opposite way to which one would ideally like to work!

However after the first six months of running the organisation and going through my first annual financial statements, I realized how complicated it was trying to retrospectively sort out the finances, so I had to put some clear boundaries in place.

Here are a few useful tips on how an entrepreneur can separate their personal finances and lives from the finances of their business:

Open a separate bank account. Many entrepreneurs starting their business find it simpler to use their personal current account to do business transactions. The problem is that with personal debit orders going out and ad hoc withdrawals, an entrepreneur may be unable to gauge how their business is doing.

Also there is the risk of spending more than the business is generating which means that an entrepreneur may run out of cash to pay creditors or will not have any reserves to plough back into their business, ultimately limiting the growth and success of the business.

For entrepreneurs starting out, opening a business bank account might not be an option from a cost perspective, as business accounts tend to incur higher bank charges.  And if you have just taken a plunge into entrepreneurship, you will want to keep unnecessary expenditure to a minimum. If this is the case, it may be worthwhile opening a savings account, or a separate personal account to do business transactions from, until you are ready to make the move to a business account.

Pay yourself a salary. In order to successfully separate their personal finances from the finances of their business, entrepreneurs need to view themselves as an employee of their business and pay themselves a salary. At the end of the day, food needs to be put on the table, and bills need to be paid. If an entrepreneur has a monthly income from their business, then the temptation to dip into the business funds to cover personal expenses will be reduced.

Draw up a budget and stick to it. Starting a business can often mean a difficult financial adjustment until the business is up and running. Entrepreneurs need to be realistic about how much income they are going to generate and whether they can support themselves and their lifestyle.

A business may have a high turnover, but that does not necessarily equate to high profits. Entrepreneurs need to draw up a budget and stick to it. This requires discipline when it comes to living within your means, especially if your previous source of income came from formal employment, where you were paid more than you are currently earning in your own business.

Keep detailed records of all income and expenditure. Keeping receipts, and recording amounts spent and amounts brought in, will give an entrepreneur a true reflection of how their business is progressing. This includes keeping track of “hidden costs”, such as fuel, mileage and car maintenance for your personal vehicle which you use for your day to day business activities.

Although this may not seem important, this information becomes critical in making business decisions. For example, we worked with an entrepreneur who was too scared to employ someone, and too scared to open a cell phone account, and instead, used to pay contractors at double the price. Once we sat down and looked at her monthly expenses, and did a simple cash flow for the year, she realized that she would easily be able to afford both and, and greatly improved her profit by doing so.

Be accountable. Ultimately the success or failure of a business depends on the entrepreneur. I have observed the difference it makes to have a mentor to hold an entrepreneur accountable for making sure things are done the right way in their business. In formal employment employees are accountable to their boss to do their job well.

Unfortunately when starting your own business, if you have no one to hold you accountable, there is a risk that certain aspects of your business will be neglected. Entrepreneurship can be a long and lonely road, and a mentor can provide fresh perspectives, ideas and solutions which you may not have thought of. Entrepreneurs starting out would do well to find a mentor, who amongst other things could hold them accountable for managing their expenditure.

Liz Zambonini
Liz Zambonini is the CEO of The Hope Factory, an established Enterprise Development Initiative of the South African Institute of Chartered Accountants (SAICA). For more information, visit