Keep business money separate
Set up the one habit that shows you whether you are profitable and makes a bank say yes.
5 min read
The most common money mistake in a small business costs nothing on the day you make it: paying for business things from your personal account, and personal things from the business. It costs you later, when you cannot tell whether the business is making money, and when a bank asks for proof and there is none.
Why it matters
You cannot see whether you are profitable. If the business's sales and your household's spending land in one account, the balance tells you nothing. A business can feel fine for months while it quietly loses money, kept afloat by your salary or savings.
A bank cannot see it either. When you ask for a loan, the bank reads the business's bank statements. Sales that went into your personal account, or were taken in cash and never deposited, do not exist as far as the bank is concerned. Your business looks smaller than it is, and borrows less than it could.
Tax gets harder. At filing time, every mixed transaction is a question: was this a business expense? A tidy business account makes the return quicker and cheaper, and easier to defend.
How to separate them
- Open a bank account for the business. A current account in the business's name. Many banks ask for a registration — Udyam, GST, or your state's shop and establishment certificate — before they will open one.
- Put every sale through it. UPI to the business account, card payments to the business account, and cash deposited, not spent.
- Pay every business cost from it. Rent, stock, salaries, bills.
- Pay yourself a fixed amount. Once a month, transfer a set sum to your personal account as your pay. That is the only money that crosses over.
Paying yourself a fixed "salary" is the habit that makes the rest work. If the business cannot afford it, you have learnt something important — and early.
Keep a simple record
You do not need software to start. Once a week, write down:
- What came in, and from what
- What went out, and on what
- What you are owed, and by whom
- What you owe, and to whom
The last two are where cash problems hide: a business can be selling well and still run out of money because customers have not paid yet. The Running it month to month course has a lesson on that.
Do not take cash out of the business informally "for now". Small withdrawals add up, and they are exactly the transactions nobody remembers at the end of the year.
When your money is in order, the funding report below looks at your business and finds the loans, schemes and lenders that fit — with what each will ask you for.