Hi and welcome to this week's episode of Money with Alpha. Right now I'm probably somewhere traveling around in Germany for a holiday, but I have pre recorded a few episodes just so that you don't miss out on some really good content. And this week I wanted to talk about something that's come up a few times in conversations recently, which is separating your business and your personal finances and why it's so important and what can you do and what does it allow you to do, having that separation. And so, and I realize when, when some people start out and it's, you know, you're a sole trader, it's still sort of relatively sort of small even, or even as it gets a little bit bigger, if it's all common money, and I get that because it's your hard work, it's your earnings, it's all, it's all still you. And even if you are set up as a sole trader, where it's even you in the, in your tax return, if there's some slightly different areas that you complete, but it's still essentially you, it's still important to have that separ partly from just a mindset and physical energy perspective in how your business is seen. And I'll go into a little bit more detail on that in, in a moment. But the areas that I wanted to really sort of point out that it makes a big difference is it makes you see better when your business is actually profitable and where you can optimize so where you've actually got the ability to make some adjustments when you can see things separately and it's not all muddled together. And then thirdly, you can actually then make some improvements in your personal finances too because we, we end up spending so much time focused on the business. You know, there's bookkeepers and accountants and softwares and all sorts of things to support that. But then our personal lives tend to kind of fall over a bit. So our business is busy trying to fund that. And if it's all mixed in together, you can't see where the holes are. And then fourthly, if you want to ever scale your business, you have to set up systems and processes and you can't really do that if it's all blended kind of in together. Like a lot of things are built around, you know, the financials, funnels, even, even, you know, getting in team, you can't really do that unless you have systems and processes. And you can't really put systems and processes in place if there's this. No, like it's all in your head, it's all in one big kind of lump together. Your money, that is, and then anything else in your business that flows from that or flows into or out of your money. And then fifthly, if you ever want to have a succession plan or an exit strategy from your business in that you actually potentially want to sell it in some way, shape or form, you might not necessarily want to sell the entire business, but there might be parts that you can, you can sort of sell off. Then it's really important to, to have that clear separation because you're never going to be able to sell it if it's inextricably linked to your personal finances. So we'll go into each of those in a little bit more detail. But firstly, the all important why. So if you think about who you are and the personal development journey that you're on, because let's face it, being a business is like personal development on steroids. You are growing and developing as a person, as an individual, as a human, as a parent, as a friend, as a daughter or son. Like you're, you're growing in so many different areas of your life as you get older and you evolve and you have experiences, your business also has its own experiences, personality and values. So I do a lot of work in the, you know, understanding what core values are for you and also for your business. So when I do this work, I help individuals understand what their core values are for them. But then there's also another piece which I've also done for my business and I do for client businesses is what are your business values? And I'm not talking about, you know, the, that more overarching kind of things of mission where, you know, we value, you know, we value our people, you know, we value impact and all of that sort of thing. It does. There's a lot of things there that are quite common to a lot of different businesses. But what is it really that's there for you? Is it about connection and also conscious that if you're a sole trader, then your personal values and your business values are probably very similar. But if you take a step back and you look at your business a little bit more objectively, you'll see that there might be a few differences there for you. Like for me, I have things that are important to me and how I operate as an individual. But trust is one of the big things that I have as a value for my business, which while trust is still important to me in my personal life, it's vital to how I run my business and the value that I want my business to have for the people that I serve. So it's, there's just different nuances. So there's, there's that level of separation. Your values are, you know, whether, whether they're similar, but they're still going to have some differences. And personality is a bit different too. When you think of who you are when you put your business hat on versus who you are when you've got your mum hat on or your friend or your daughter hat, or all of these different hats that we wear, especially as women, then it's not going to be the same hat you wear. When you're a business owner, if you're dealing with, you know, team and there might be some difficulties or you've got a particularly difficult customer or client, or something's going either well or not, you're going to respond to that differently as a business owner than you would as a parent, for example. So you've got to look at them separately. Your finances have to be treated separately as a result, because you're going to respond to things differently whether you've got your business hat on or your personal hat. So it's really important to have that clear separation. And I'll go into some of the more tactical reasons why, but at a very sort of mission, strategic level. That is why it is so important to make sure you have that clear separation. And that clear separation could simply mean separate bank accounts, different ways of managing those accounts as well. So. And they can be in the same bank if you want. I personally have them in separate banks just because I creates even more separation. So I have personal transaction account in one bank, I have a business transaction account in another bank, and then I have a savings account in another one. Again and it just makes it a bit easier to create that separation. It also allows you to also be a bit more disciplined as well. And discipline when it comes to money is very important. Important. Sometimes it's easy just to do, you know, transfers between, but these days, when you make transfers and they happen instantly, it really doesn't matter if they're sitting in different banks. But I like to have that, that, that actual physical separation because it just helps with managing money. So I'll go into each of those five that I mentioned in a bit more detail. So first of all, if you don't have your business and personal finances separated, you really aren't going to see properly where your business is profitable. It also will mean it's a lot harder for your accountant and your bookkeeper to actually kind of like pull out. They're like, okay, so if I've, I've got this bank account with a whole lot of stuff, or there's multiple bank accounts and they're both mixed between business and personal, it just, it becomes really difficult and you're going to be paying a lot of money for somebody to clean all that up because they're still going to have to separate it. Even if you're a sole trader, you still have to be able to figure out what actually of all of those expenses is tax deductible. You know, where is there like plant equipment, what are you buying that you could have depreciation on? What is, what are the things that you can do to improve your tax position? It's very hard to see that when it's buried all in the same bank accounts or accounts. I've, I've seen somewhere there's just, there's so many different bank accounts for so many different things. And then this one had money, so that got taken to pay for that. Even though that was business or that was, I was, it just, it becomes quite confusing for a business owner as well. So, so it's really, really important to have that separation so that you can actually see where your business is making money. And then an extension of that is how to optimize the, the inflow and the outflow of money too. So, you know, you want to be able to make sure that you've got the right offers, the right pricing that you can actually see at a per offer or per product or service level what your profitability is. You can't really see that when it's all lumped in together because you've had to try and like pull this out and you're like, okay, well this income was but that went to pay that. I was like, okay, so, so. And then what expenses are directly linked to that service? Are there any. What, what's the, the cost of goods for the, for that product? It's, it becomes really, really difficult to actually then see what are your most profitable services, products, offers, etc. And then how can you optimize those? And then it's also then if you're spending money on marketing, you're going to be marketing the ones that are more profitable. You can perhaps throw a bit of marketing dollars out the ones that aren't so profitable if that's what it will take to make them profitable. And if not, you turn them off and then you focus your attention more on the ones that are actually popular and Making money. You get so many more insights into how your business is running when you can see those things separately. So then, and then your business structure then too. So sometimes you might have got to the point where even if you're, you know, from a tax perspective, it might be, I had a client recently where it was quite marginal in terms of whether it was more tax effective to be a sole trader company. But the level of complexity and the cost that went with going to a company was just so much bigger to the point where they just looked so bamboozled. I was like, okay, well it, you could still consider this, but I think at the moment from a tax perspective and you need to validate this still with your accountant, there's not a huge amount of difference based on your taxable income. So. But then if you're looking at things where it has just become so complex managing them separately, you're like, okay, well now it's actually going to be easier for me to change my business structure and have that really clear distinction between my personal financial situation from a tax perspective and my business perhaps set up as a company or a trust. Again, this is where you need to seek professional advice specific to you, whether it's from your accountant and, or lawyer. Kind of have to have a bit of a blend there because there's a legal structure. But then you've also got to consider the tax consequences too. So you really have to have those two professionals working together. So that's, that's where having that separation makes it a lot easier to be able to have those conversations too because otherwise your professional is going to come at you and go, okay, so where, where is, what, what's, what's your profitability? Where's your, okay, I'm trying to, trying to see the, trying to see the, the forest here. And I'm, I'm getting stuck in the weeds even beneath the trees. So that's, that's really important as well. Then from your personal life, you actually start to see where you're spending. And this is, this is a really interesting one because I had had a situation recently where there was, there was all there was, there used to be really clear separation and then the waters started to get a bit muddied. And then before you knew it, some of the costs in their personal life were just skyrocketing to the point where, you know, take out groceries were quite high, insurances had started to blow out. All these things that they, you know, when you take your eye off it, it just starts to kind of, you know, spread and it's a. It's a little bit like, you know, when. If there's a. Even a lot of rainfall and it starts to. To sort of flood, but it's like seeping water. It's silent, but rather quick, and it really seeps out. And you're like, oh, my gosh. That's how the money then starts to. To flow. It flows out like that, and you're like, oh, my gosh, I need to start to rein this back in. But it gets harder and harder the longer you leave it as well, and the more it seeps out. So that's, that's just. It's. It's a bit of a dramatization. Yes, but it is. It happens. I see it happen all the time. And so you can start to. To have that visibility over your personal finances and your business ones and then go, okay, well, how are these connecting better? Am I paying myself the right amount? I've seen too often where business owners pay themselves a very small salary for various reasons, but sometimes it's to try and minimize tax in the personal life, or they go, oh, I don't need that much money. I can live off this. But then I'm constantly seeing ownership, you know, drawings, directors drawings coming out of their business, and you're like, this isn't working. Your salary is not covering your personal life. So let's figure out what your personal life actually needs. And then there are all sorts of things in there, and they're like, oh, wow, I didn't even know I was still subscribing to that. I don't even know what that is. And you're like, okay. So there's suddenly thousands of dollars that have come out of the budget of the personal side to go, right, okay, we can. We can do better here. So you can't do that very well when it's all buried in together, because you're going to see an inflated amount for something that you're like, okay, well, yeah, but, you know, you might say, just as an example, oh, I'm seeing, you know, $20,000 in there for groceries. And you're like, yeah, but I don't spend that much on groceries. You're like, okay, well, five grand of that actually related to an event that you ran where you catered. And that five grand actually sits in your business finances. So your. Your groceries is actually 15 grand. So you need to be able to see those differentials to be able to make better decisions about what you're doing and what you're spending your money on. And to be able to structure your money in a way that it's fulfilling the purpose that you want to give your money to achieve the lifestyle that you want now and also in retirement. So without that level of visibility, it becomes really, really difficult. So then the setup, setting up of systems and processes is another thing too. Once you have that clear separation and you can say, okay, when this comes in, this is the credit card that gets used for the business, or this, this money is earmarked for school fees, it's, you can start to set up and, and the systems and processes generally get set up more on your business side. I don't see many people who want to set up systems and processes in their personal lives because, you know, unless you're going to have your own personal assistant, which a lot of us don't do because we do our own life admin, but your business, you definitely need that. Because if you're going to bring in a VA or a team member, other staff to be able to help you run and grow your business, they need to know what's going on. And if they can't, if you don't know what's going on, they're certainly not going to know what's going on. It's just going to create confusion. And with confusion comes more costs as well, because someone's going to have to clean it up at some point, whether it's your accountant or your bookkeeper or your va, and they're just going to be scrambling, trying to figure out what's happening. So it's, it's really hard to do that if you don't have things clearly separated and a clear idea of how things are supposed to work. And then you can also set up the sort of those processes around. Well, how do we then set up a, we might have a formula for how we set up an online product or even a service and how we market the service, how much do we put in, what sort of click through rates, what sort of, you know, how many discovery calls, whatever it happens to be, you can create a process around that and then you can track the costs that go with that and you can go, okay, did this actually meet what I thought it was going to do? Yes. No. Why? Why not? So you can actually start to do some of that and you get really good information out of all of that. But you can't do it if you can't see it. And then finally the exit strategy, slash succession planning. I've seen businesses where, you know, they've grown and scaled to quite an Extent. But there is no one at the moment that they would trust to hand it over to. And at some point we all need to slow down, retire. You know, if anything else happens, you know, you need to be able to, to have that, that plan in place. That's from a succession planning perspective. Again, you need all of those things. You need your separation because if you're then going to extract yourself from your business, you can't. If your personal finances are all messed up, linked to that, it's, it's impossible. You can't get investors, you won't be able to, to remove yourself from the business unless you have that separation. And that's also where the exit strategy comes in too if you ever want to sell your business. And I get that it's not, not necessarily something that a lot of sole traders will do because they are their business and then when they want to retire, they just sort of shut the doors. Like my dad was like that. He, he could have probably sold his business. He was a house painter and self employed and he'd been that way for like 20 years. And he built up a really loyal customer base but he just didn't want to, it just never occurred to him set it up like that. And he didn't have enough clarity between the separation of business and personal finances. He also had no systems and processes. He had, you know, there was so many things that were just still like very old school, not written down. But then I recently had had a friend who sold her photography business and she had all of that set up. She had somebody who, who bought it and they, they had the value in that too. So there's so many things that you can do but you've got to set it up in the right way. And in order to do that you've got to have your finances clearly distinguished between personal and business. So like I said, the best way that I've seen to do that is to have separate banks. If you don't want to go to separate banks, clearly separate bank accounts. There is a little danger in that though, because I have seen somewhere that's blown out, there's been an account for this, an account for that, an account for that. To try and make it simple, but it actually makes it more complex. So it's, it's really creating a bit of balance in that space. But yeah, so just overarching. Remember, you and your business have different personalities and different values and then because of that, the five areas that I spoke about was you need to be able to see where your business is profitable and you need to be able to optimize your offers and be able to actually see how to structure your business better. Having better visibility of your personal finances allows you to make better decisions and see where things are seeping out that they shouldn't be so that you can actually then pay yourself the right amount from your business to actually fund the life that you want and build the wealth that you really want to be able to live in your future and retirement the way that your lifestyle would. You know what you're dreaming of. And then finally, oh, and they're setting up your systems and your processes so that you can scale. And then finally your either your exit strategy or succession planning to be able to actually leave a legacy or to have a functioning business. If you want to start to step back or even get team, that's that's the other aspect of it as well. So there was quite a lot of meat in that in this episode. I hope you found it valuable. Please reach out if you have any questions in relation to this or if you have any other topics that you'd like me to discuss. And yeah, I hope you're going to look forward to the end of this financial year and we're going to be starting a new one again soon. I can't believe that. My gosh. And now's a really good time to do some reflection and some planning ahead so that you can make the next year the best year that you've ever had. All right. With that, enjoy your week.
