You have a successful business, but you're constantly short of cash in the bank. What's gone wrong? Well the answer may be that you've failed to manage your drawings.
Many business owners have no idea how much they draw from their business. They use their business account to pay their household bills and credit cards. And they draw cash whenever it's needed, which is usually every week. They never find out how much it all comes to until they see their annual accounts, which don't look very nice. How can one take control of one's drawings?
Well the answer is very simple.
First, you have to set up a separate account for your oersonal expenses. This may involve paying bank charges on your business account, but it's worth it.
Next, set up a standing order from your business account to your private account. The amount is not what you spend privately on average, but what you can afford out of your business.
Now you have a fixed sum to spend each month. Don't draw extra amounts when you are short of cash. Instead, you have to learn to budget.
How much spending is essential? What limit should you place on your shopping? How much is my holiday going to cost me? All of these questions arise the moment you limit your monthly drawings.
In short, a fixed monthly sum for drawings focuses the mind. It's as if you were an employee. The key is to make the budget tangible by transferring money into another account.
A golden rule in accounts is that Drawings must never exceed Net Profit. Banks take a dim view of one's credit worthiness if they do.
So get your accounts in shape by managing your drawings.
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