Drawing A Line Between Private Purse And Business Purse

Please Share This Post Using Buttons Below...

MKT - COMPETITIONI 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/audit 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 accountability. I was of the strong opinion that one of the strongest enemy of his business, and the number one reason why his business was facing difficulties, was his refusal to strictly follow the “business entity 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 to be seen 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, especially SMEs. 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 his personal bank account/purse. It also required strict recording of ALL financial transactions and accounting for ALL business resources. 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! Every other money taken should be treated as drawings and properly recorded and monitored. Sounds odd? But financial discipline is one of the major secrets behind the enormous growth experienced by most businesses – of all sizes. And certainly, financial indiscipline or recklessness is a major reason why so many businesses, especially the SMEs, are experiencing stagnation, stagnated growth, financial stress and in extreme cases, eventual collapse! So its a matter of choice ! Financial discipline Vs Financial indiscipline 🙂 

Thanks for your time 🙂

Please Share This Post Using Buttons Below...

Michael M.

INFOPLAZE.COM seeks to be a provider of very useful, family-friendly and ever-green tips and info on education, business, ICT, Inspiration, family and relationship matters, living and life style and much more. If you liked what you read, please share it (them). You can get updates on this blog by filling out the subscription form at the bottom of this page, by following @Infoplaze on Twitter and by liking @Infoplaze on Facebook. Cheers.

Leave a Reply

Your email address will not be published. Required fields are marked *