My Business Banking Set-up

I’ve spoken a lot about how I manage my money … you know, the Barefoot Buckets, the orange cards, and the super-cheap index funds.
 
However, I don’t think I’ve ever discussed my money set-up for how I run my business. And I don’t think I ever would have, except for the fact that I was roped into doing a talk for small businesses in my hometown this week.
 
Here’s what I told them:
 
Some people get excited about designing their logos, websites and socials. Yet when I started my business I looked at the most common ways small business owners go broke, and set out to avoid them.
 
I call them the ‘three Bs of business’ … bastards, bust-ups, and borrowing too much.

Firstly, the bastards (the Australian Taxation Office).
 
It’s true, the biggest killer of small businesses – at least early on – is none other than the ATO.
 
My golden rule:
 
Thirty-five percent of every dollar I earn gets transferred immediately into that online savings account, which I’ve nicknamed ‘tax man’. (Side note: When I was setting everything up, I went with a totally different bank for my business – actually a credit union – to keep things separate from my personal stuff. I have a basic business transaction account, and an online saver, which currently pays 4.6% p.a.)
 
Why 35%?
 
Well, it accounts for my company tax and my GST (which many small business people forget about).
 
It’s a conservative number – too conservative – because I always have extra money sitting in that account after paying my tax. And when I’ve paid my taxes I take that surplus and invest it into the business to make more money.
 
My accountant, ‘Old Stubby Fingers’, tells me I should be more ‘sophisticated’ and use the tax savings to manage my cashflow.
 
He’s right, of course.
 
But I don’t like doing budgets, much less trying to stick to them. And I hate having heart palpitations when my BAS is due. (So stick that in your spreadsheet and smoke it, Stubby Fingers!)
 
Secondly, bust-ups.
 
I can count on one hand the number of business partnerships that have lasted the distance. Most don’t, because relationships are tricky … especially when there’s no sex, and there’s money on the line.
 
So early on I decided to not take on any business partners. Never. Ever.
 
And, thirdly, borrowing too much.
 
This is why I run my business without debt.
 
The upside is I don’t have to hock my home for a business loan (the banks almost always want a personal guarantee).
 
The downside is that it’s my back up against the wall, and the buck stops with me.
 
And that’s why I have a fourth ‘B’ – burn money.
 
When I first met my wife, she was slightly petrified that I ran a small business. (Her parents were academics, so she had no concept of ‘you only get to eat what you kill’). So each month I work out my ‘monthly burn number’, which is all the fixed expenses of the business that I have to pay to keep things running, including paying myself a basic wage plus super.
 
My aim is to have three months of burn money sitting in my business transaction account, and I try not to let it dip below that amount on a month-to-month basis. Having an accurate burn number burned into my brain keeps me both hungry (at the start of the month) and humble (when I have a good month).
 
Then, anything left over and above my three-month burn figure goes into blasting through the Barefoot Steps … and these days into shares.
 
 Yes, it’s simple. But it needs to be, because being in business is bloody hard!
 
 Tread Your Own Path!