expenses

The one rule when starting a new business.

 

I’ve been working in, working with and starting small businesses for 16 years. The businesses that I see succeed always have one thing in common. They know how much money is in the bank. You may have heard the phrase Cash is King a million times, but it’s this is the simple way to make sure your business doesn’t run out of cash.

When you start any new venture, you are going to have to pitch in money. Whether it’s fitting out a new store, or living off your savings while building up your freelancing income. There is a personal financial cost, and an element of risk.

Where most people come unstuck is when they lose track of the spending or the income. They think the business is making money, when actually it’s been subsidised by another business, or their salaries, or worse — the savings. It’s normal to put in savings into a new business, but only when it’s a conscious decision and not throwing good money after bad.

Open a dedicated bank account.

That’s it.

Transfer an opening sum of money, which is how much you are willing to risk. No more. Keep your savings in your own account, and keep the two separate.

  • You know if you are running at a profit, and you can’t run at a loss beyond your original contribution.
  • At the end of the year, you can claim every business deduction by giving your accountant business bank statements.
  • You can’t lose track of SAAS subscriptions (which can chew through freelancer income)
  • You can quickly identify if you aren’t charging enough to your clients/customers.

When you start having surpluses of cash in that account, then you can start paying yourself back. Then, the business should be self-sufficient, and not eating into your personal finances.

It’s a simple as that. If you have a business, treat it like a business.

Harvest and marking up expenses

If you've got expenses to be on charged to a client, with a set marked up amount - there is a way to configure Harvest to include those expenses at the grossed up amount.

Let's use the example of an interior designer.  The interior designer uses Harvest to bill her time to clients, but all materials sourced for clients are to be marked up by 15%.  Many people record the expense at cost in Harvest, and then make the adjustment at invoicing time.   

Rather than risk forgetting to having to adjust the expenses (or even bother with having to do it at all), set up your expense category so that it has a unit price equal to the percentage markup.  In this example, our client wants to mark their sourced items up by 15%, so we put the cost as $1.15 per unit.  Each unit, is each item we have sourced at cost.

Then, when it comes time to put in our expenses, we just record them at cost, include the receipt for our records and voila!  The expense is recorded at $160 ready to be billed.  Have a closer look at the gallery below to see the configuration, and how it looks in action.