Hi, and welcome to this week's episode of Money with Alpha. This week I wanted to talk about a topic that comes up quite regularly when I do speaking and I get asked to speak on it. So I thought I would share some of this in a podcast. So, and that is how to manage your business and personal finances separately. So this one's for the business owners. Some of the, the personal side will be relevant to everyone, but it's specifically aimed at helping women business owners or business owners in general to be able to understand how to, how to manage both, because there is so much support in the business financial space, like there's bookkeepers, there's accountants, then there's, you know, all of the systems and tools that go with it as well. And you can have the compliance assistance and then the strategy assistance, and then there's business coaches and there's so many different facets of, of support available as a business owner. But where I've seen a lot of my clients fall down is where they then are kind of left to their own devices in the personal space. And they've got all this support and they're like, oh, I have an accountant to do my personal taxes. But then there's always this, there's this lack of knowledge. And then there's that lack of understanding, well, what do I actually do day to day? And even when you're managing your cash flow as a business, there's no one to explain kind of how does the cash flow work. And depending on how you're managing, like, are you in a cash accounting or accrual accounting even, how do it to explain the difference in that space and what the tax implications are of the different business structures. So there's, there's lots of different areas to know, but to be honest, one of the biggest ones is like day-to-day cash flow, and that's what often really causes problems. Like, the amount of tax debt that I've seen is just— it's alarming, and it's really concerning and, and soul-destroying because it's so easily avoidable with just a bit of extra knowledge on the business owner's side, because the, the accountant's just kind of like chugging away doing their thing. And unless they're really focused on, on this aspect and making sure that your cash flow is working, which to be honest, they're more interested in your tax returns and your business activity statements or your quarterly statement, whatever, you know, wherever you are as to what you have to do to lodge with the government. They're not really looking at your cash flow. That is definitely your space. And there is a very limited area, like the education's not really there. And there's, there's hardly any software that does that. That is one of the reasons why I built my app Prosperous was to help business owners. Because it was born out of the work I was doing for myself. And then with my clients, I was like, I'd love this to be able to help manage and create that visibility across the two much more simply. So I'll go through a couple of areas as to how to actually manage that. The first one is, is the mindset, which I'll talk about. Then there's your bank accounts. Then there's your systems, and then there's also your cash flow lifestyle side of things. So understanding how to bring all of that together. So there's kind of like your how, what, why, and where, and somewhat a bit of the when too. So we'll, we'll delve into it like we're journalists. So first of all, the mindset side. So you kind of start with this and then you also end with it. And because it's a, it's a, it's a bit of a an iterative loop. So you kind of have to keep revisiting it because there'll be different things that happen in your life. There'll be, you know, different like life phases. So you might have children in the midst of all of this, or then your children might sort of grow. Like, once they've gone through and you've paid for all their schooling and they've flown the nest, and then you've got other areas to— then you've got kind of other lives to deal with. And then you might end up in a caring situation for, for a parent where you've got to try and navigate sort of all the different facets of that, and then managing your own cash flow, and then perhaps helping them with theirs. And if you haven't learned how to do yours, it'll make helping them with theirs a whole lot harder, because I know I've had— I've been there. I've gone through like learning about my own, and then I had to help my, my dad, and now I'm helping my mum. And so there's, there's a whole lot that with it as women in particular. We, we wear a lot of hats and quite often this sort of stuff does tend to fall on us, unfortunately, if you're if you've got some brothers, I can pretty much guarantee that a lot of this sort of admin stuff will fall on the sister and the daughter in the family. I am talking generally speaking, of course. There's some families where they don't have a daughter, so a son is going to have to step in and do it, or it might even be his wife, you know. Anyway, we won't go down that path. So first thing you need to understand is what is— where is your mindset at in relation to this? Is it in complete and utter overwhelm and you have absolutely no idea what to do, or have you been like trying a few different things You know, you've, you've read Barefoot Investor and so you're kind of doing that. You've read a bit of Profit First. So you're trying to do a bit of that, but you're trying to figure out how to make all of that work. And then you've got the professionals on top of that. So you might have a bookkeeper or you might, and, or you might have an accountant. And then how do all these people talk together? And if you've got an accounting system, how do you kind of figure out how to make that work in your personal life? Or, you know, there's, there's, there's all these areas. So it's understanding where are you at at the moment? If it is complete and utter overwhelm and avoidance because it just is way too hard, then it's important, I think, to maybe just like document it. I was at a workshop today and we were talking about AI and there was all these different tools and what they could do. And I was, I kind of came, I guess, with the idea that I would figure out ways to streamline things. And by the end of it, I was like, oh, I've actually like added to my toolkit. So I had to start like writing down all the different tools that I'm using and then writing out what I'm using each tool for. To see, can I consolidate any? Or I now need to make sure I'm really, really clear. Cause when I hand it off to team, they need to know what tools being used for what, what the capabilities are of each one as well, because I was learning about Claude and then, but it works quite differently to ChatGPT. And so I kind of went through a stage of overwhelm and then I was like, I just need to like write it down. I need to just like write my list. And then I need to sort of like— and then to be honest, you could almost actually put your list into an AI and go, okay, these are all the different areas of my life. What should— how do I organize this? Like, give me a plan. Like, there's ways to be able to become a bit more productive. And there's so many productivity tools out there as well, which also can be overwhelming. But to start with, I would— and one thing that I found with a lot of people is actually write down your bank accounts. So that then becomes, you know, if your mindset is like complete and utter overwhelm, and you're not quite sure where everything is, just start to like write down just on a sheet of paper, pen and paper, it doesn't need to be fancy, what bank accounts you've got, where does it all go. Like, I had a client do that for me recently. She had, I think it was 3 different banks and 16 different bank accounts. And some bank accounts were literally just for one thing. Money came in one account, got transferred into that account before getting transferred into another account. I was like, so what's this one for? It's like a holding account. You're like, oh yeah, I didn't really need that one. So I like, okay, well, can you get rid of that one? And can it just go straight from there to there? Or better yet, can it just go straight into the account that it needs to end up in? Like, why, why are there two steps here? So we've often just through time and, you know, circumstance, we've, we've added complexity to our, to our sort of lives because it probably made sense at the time, but that might not make sense anymore. So, and there might have been a different level of capability like back in the day where you could only have a super, superannuation fund linked that your employer use. Like, the employer had to have that fund of choice, and you had to use that. Whereas now you can take your fund with you wherever you go if you're an employee. So it's now a matter of going, okay, well, maybe I— as a result of changing jobs and whatever over time, perhaps before you had a business, you've accumulated like 3 or 4 different super funds. Now's the time to consolidate those. Before you do that, however, there are some things that you would need to look at, which is, you know, what kind of insurances have you got inside them, What are the fees of each one? Like, you've then got to decide which one to keep, or do you take all of them and move it to a completely new one? So that's one level of account. Then you've got your personal banking. Do you have like one transaction account or do you have multiple? I've seen quite a few where they're like, oh, I have this account coming in for here, and then I put it in this money to pay for childcare, and I put it in this one to pay for home loan. But it's like, yes, but if you're segregating it out so much, you then lose a little bit of perhaps interest earning capability. If you've got a loan and it's in offset accounts, then maybe not so much. Or sometimes it just gets too confusing and overwhelming if each account is too segregated. Like, I just have one for bills, and if I've got 5 in my personal and I have 5 in my business, so between those 10, that's more than enough because I've got my, my personal kind of 5 and my business 5. So it's in my head, they're actually 5. I don't sort of see them as 10 because they're like 2 different personalities in a way. But if I had 16 in one, I, I'd start to like, it would be way too overwhelming for me. So you do have to kind of match it to how you like to work. But I have found when you get beyond maybe the 7, it starts, your brain starts to like, if you can't like carve it up in your own head it's, it just gets too much. And then there becomes too many transfers every month. And then if you're trying to use an app. It gets too hard to try and figure out what's what. Like even in Prosperous, I've added sort of categories for expenses, but then I've also added a classification component where you can— any transfers, because I have money transferring back and forth, different accounts as well. And I don't want them to be treated as an expense. I want the actual payment of the expense to be like, just as an example, I had my daughter's school fees to pay recently. So I went to the savings account where I save for her fees and activities, transferred it into my transaction account. And then paid it from the transaction account. But I don't want the money coming in from the savings account to be classed as income, but I do want the, the actual payment of the school fees to be classed as an expense because I still want to track my expenses. So I have one being excluded and one being classified as— but I don't want the money coming in being an income, so that one's excluded, and then the expense itself is classified as an expense. So, and then category becomes school fees. So it's, it's there where you start to kind of, you need to make that part not too complex. Otherwise you'll be going, okay, how many things are coming in and out? And at the moment it's added some complexity because I've got money coming into my account that I pay bills from on behalf of my mum. So I'm adding a layer, which I'm finding starting to get a bit confusing for me when I have to start to categorize and classify my stuff. I was like, was that my mum's rates? Was that my rates? And I was like, because of course everything's due around the same time. And so I'm having to like create a category now just for mom so I can, I can classify it as that. And then I can go exclude so that I'm not including her expenses in mine. So it's inflating what I'm looking at. So it's, it's these sorts of things. Once you have a system that's flexible enough, then it can work with you, but you've got to, you've got to like lay everything out first and then figure out what you need to set it all up. So between your business and your personal, You need to segregate them completely. Otherwise it'll just, you'll get confusing and then you'll start paying business things from personal expenses, which is going to make your tax return really confusing. And it's going to make life for your bookkeeper and accountant really complicated. And then it may even trigger some Division 7A loans, which is where you're like lending to your business. And then so that, and that level of complexity can, can lead to tax debt. And I've seen that sort of thing happen way too quickly and easily, and business owners don't understand that it's happening. So really try and keep business on one side and personal on the other. Absolutely have separate transaction accounts, have separate credit cards, make sure that they're clearly used just for those things. If your business is running low and you need to pull in from your personal, then that has to be done in the right way. And that's where you would talk to your accountant. You then need to make sure that you're creating a buffer in your business so that when there are lower months, you've got like your emergency fund, so to speak, in your business so that your business emergency fund can pay your business expenses when there's— when it's a down— a downswing month. And same sort of setup. So I run my personal business pretty much identically. But they're completely separate. Then you have your, like I said, your systems. You need to understand what's, what's going in and then make sure everything's connected. So with your business credit card, make sure that and your business transaction account is connected into your accounting system. So I use Xero but if you use QuickBooks or MYOB or whatever it is that you happen to use, make sure that those are linked together so that every time you use those cards It's going straight into your account. And then all you've got to do is a reconciliation at the end of the month to make sure that it's going into the right account, sort of your accounting accounts. And so, and then for your personal, you can use Prosperous. That's going to be like your, your accounting system, your tracking system. But you can also pull in your profit and loss data from your business into Prosperous as well. And it can run a bit of analysis that can see, are you paying yourself the right amount of money? What are, what are your trends looking looking like? Where, where's your, where's your what, what month on month, each account, how's it looking? How's your sales looking? How are your expenses going? Cost of sales, like all of it. You can see a lot nice, more nicely or easily in there. I often find that accounting systems, their reporting is not particularly visually friendly or easy to even navigate. So that's why I created the the Business Clarity component of Prosperous to be able to give you that visibility. But regardless of what tool you use, you need to be able to see it and make sure that you're, you can see where all your money's going in your personal and you can see in the business and that the two are separate. So that you know what your cash flow in and out is on both sides so that you can more accurately project. And so that you can actually then have plan for the money that's left over. So plan to have profit in your business, which you can pay out as, you know, director's fees or salary or reinvest it into your business. And then at the end of every month when you have like a, I'm You can use the word profit again in your personal life, which is basically money left over. We don't think of it that way. We think, oh, leftover. We're so used to not having anything left over. Like we've, here's our income and that here are our expenses or even higher. Like we, we're not aiming for less. And it's that gap between here's my income. So your income is $10,000 and your expenses are $8,000. It's like, okay, well, I've got $2,000. What do I do with that? And because we don't know what to do with it. It just goes, you know, the only thing sometimes we think we know to do with it was all just save it. But if you don't know what you're saving it for, it's very easy. And this is where our behavior and habits come in. We tap into it and we're like, well, I don't know what that money's for anyway, so I'm just gonna use it to get this or go on this holiday or I don't know, buy the, the 3D printer or do the thing or whatever it happens to be. So you've gotta have a plan and a goal and a vision for what you want that, that $2,000 to actually do for you. So this is where understanding what it is that you want, what lifestyle do you want? What are your values? What is it that you want money to do for you? And this is where I use the money pie, which I have inside Prosperous as well. So you can actually carve it up. So I have a money pie slice for my, my daughter for, it's sort of a bit of a multifaceted one where I pay her school fees. I save and then pay her school fees from it. I save and pay all her activities because she does a bunch of activities as well. And then every quarter my, my husband, my mum, and I all contribute into this investment fund that I started when she was born. And so I pull the money out of that to go in there. And then I have a micro investing account that I put stuff in there for her as well. So that's, that's that pie slice. Then I have another pie slice which is for like bills buffer, like for the bills that don't come every month, but I need to make sure I put money aside for them. Some of my bills come quarterly, some of them come annually as well. So I've mentioned in previous podcast episodes that January is a bumper month for things because That seems to be when I do a lot of my insurance reviews. So that's when the annual insurances are due. So January is always a, whew, it's an expensive month. So I need to save for the whole year to make sure I can cover that. Then I've got fun. Important to have fun and you want to be able to pay for it because my fun is travel and travel costs money. So I need to have money in there to be able to enjoy my fun. And travel because that's what gives me joy. Then I also have an invest one. So in addition to my superannuation, I also have investments outside of super, and I have— some of them are automated regularly, but then I always give myself a little bit extra so I can invest in other things if, you know I, you know, the, the modern ADHD brain, whether it is or not, who knows, but I like to be able to throw in a bit of variety. So I have 3 ETFs that I, I invest. I have an automated investment in every month, but then sometimes I'll add— I'll use the extra just to add it into a different one if I'm seeing, you know, things change in the market. And I was like, okay, well, I want to be able to invest in that. So if I don't do it necessarily every month, but the money goes in there into that account every month, and then when I feel like I want to do something, I invest it in that. But I have that money or that cash there to be able to do that. So it gives me that flexibility. And then I have another one in there which I I can't think of at the moment, so it can't be that important. So that's my money pie. So that, that's for my personal, and my business has its own money pie. Again, you can have your own money pie in Prosperous for your business too, under in Business Clarity. But I have again, one for buffer. So making sure that, you know, the months that if, especially if your, your business is seasonal or say for instance, you know, during school term, that's when you get most of your business, but during school holidays, it really dips. Then you need to make sure that money is going in there to help you cover the expenses for the dip months. And then have sort of a, like an overflow reinvestment kind of thing. Like for instance, if you know, the printer breaks or, you know, there's this new software that you want to get, or you need a new laptop, then bingo, off you go. You can, you can buy some equipment. Profits, of course, and tax, very important to make sure that you've got an accurate view of what your tax liability is going to be so that you can actually put enough into that tax account. If you're paying tax quarterly through your business activity statement, Some of that will already have been prepaid. But the amount of people who are surprised at the end of the tax year, it's just, it's really like sad how often that happens. So if it has happened to you, you are not alone. It happens very regularly. But then you calculate the percentage of your revenue that needs to go in there, or your post-revenue, and then you put it there. And that way you've just got just to cover you if you haven't actually paid enough in installments. Super. You need to pay yourself super as well. Your retirement is important. And so yeah, so you have your, your business money pie and then your salary, of course, that you're paying yourself however that comes out. If it comes out of salary or director's fees or trust distributions, however, however your structure is set up. So it's, it's really important to have— it's essentially the same system, just duplicated in a way so that you can have a visibility on your personal and visibility on your business. And things just hum. Once it's, once you're clear on what it is, you have it set up, you can see it. And then in your personal, you can connect that day-to-day cash flow to your bigger picture of wealth and future. And again, that's why I built Prosperous to not just take that day-to-day, because there's lots of budgeting apps out there. How do you actually then visualize the future? But today I'm just talking about that separation of your business and personal. Basically your cash flow. And then the growth side, that's, that's the next, that's the next step. Once you've got all that set up and humming and you're visible and you're clear and it's flexible, then you can actually start to really focus on planning for growth. And then you can actually implement it because you've got the money to do it. That's, that's the tool. That's what money is. It's the tool to help you get where you want to go. But we need to, we tend to avoid that that initial step. Visibility because it feels overwhelming and there's probably a bit of cleanup to do. But it's worth it because when you get to the other side of it, you're not going to have to worry about it much anymore. You just tweak things here and there, you know, like, do I need another pie slice? Yep. Oh, okay. I added a pie slice and made life so much easier when I was paying things for my daughter. I hadn't done it sooner, I don't know why, but you know, sometimes we don't always Even when we teach the thing, we don't always do it in a timely fashion. So I know what it feels like to do that as well. But it feels so good when it's done. So just to recap, there's the mindset around why you're actually avoiding the money thing, and then actually looking at your business and your personal life as two different entities and making sure they are clearly separated. Clear bank accounts, credit cards separate different money pies. All of it has to be separated so that you can, you can use the same sort of system. So you can, if you would like the money pie concept or the buckets, whatever works for you. Do those different labels, but the same, the same concept behind the system. Have that set up visible when you get your extra money every month, profit in your personal and your business life, then you know what you're gonna do with it. And then you can just enjoy life and make sure that those pie slices are set up to support the lifestyle that you want and they're aligned with your values. So that's, that's what I wanted to go through today. And doing all of this on a percentage basis, especially in your business, will give you that flexibility to manage the cash flow ups and downs. You can start to cement it more solidly in your personal life because you can just pay yourself a steady salary out of your business. But at least you have those structures and systems in place and you can play around with what works better. Do you pay, you know, do you classify your business money pie depending on how how your revenue model works. Is it pretty stable? Well, then you can probably do dollar figures, which means you can automate transfers and things. But if it's not, do percentages in your business and then pay yourself a steady salary so you can automate dollar-wise in your personal life, and that gives you even more simplicity. So with that, I'll let you have a think. I will put some show notes in here so you can have a bit of a read of those concepts as well. But in the meantime feel free to ask questions and have a look at Prosperess. It's prosperess.net. That's R-E-S-S on the end. I'll put the link in the show notes as well. But that's the tool to systemize all of this. And that was the reason I built it was because spreadsheets just weren't cutting it. And I was trying to make it as simple and automated as possible. So yeah, have a wonderful week and I will catch you in the next episode.
