However you define “success” in business – starting to build a surplus of money is a pretty major milestone (and feels so good!).
So if there’s cash just sitting there in your business account, but it’s doing nothing…what should you be doing with it?
Maybe you’re a couple of years into your business and getting to that stage where you’re not spending every single penny you earn or having to borrow from friends and family.
Which is brilliant. But presents a different challenge!
Or maybe you’re finally getting to or over 6 figures, but you’ve not had time to figure this stuff out yet.
Obviously you want to do something with it! But what to do for the best? So it just sits in your account, another month passes and it’s still sat there doing nothing.
It’s such a missed opportunity…
Depending on your personal situation, here’s #5 things to consider doing with that money!
#1. Profit First!
The first thing I would suggest is that each time money comes in, put aside what you need to pay for your tax and VAT if you’re VAT registered. Take that money out first and keep it in a separate account.
Why? Because at the end of the year, when your accountant tells you how much you’ve got to pay, there is little on this earth more stressful than facing a big tax bill and NOT having the cash to pay it.
This practice alone can make you feel so much organised and in control of your finances.
And tax money is not your money to start with! So it makes sense to put this away first.
I’ve created a system for this, based on a brilliant book called ‘Profit First’. It’s written by an American and I’ve pulled it into a plain English system, that works for the UK market.
More often than not, when you then get to the end of the year, there’s more money in the account than you need. Giving you the opportunity to take an extra bonus or reinvest in something for your business (like that course or Mastermind you really fancy), without worrying that you can’t afford to do it!
#2. Build your Director’s Account
This doesn’t have to be complicated – it’s just another account you name ‘Directors Account’!
Again, every time money comes in, put a percentage away into this account and pay yourself from there.
One of the biggest things you can do is to pay yourself a fixed, regular salary each month.
It helps you budget but more importantly, pulling out a fixed amount each month means you can also build a surplus in your Directors Account.
So if you’ve got extra money sitting in one main business account, set yourself up this extra account and start tucking some cash away there.
When you get to the stage of having 3-6 months’ salary in your Directors Account, it really takes the pressure off.
If a client doesn’t pay on time or goes bust; if you want to take some time off to travel; if something hideous like Coronavirus happens again…
Even if you have no work for 3 months, you’re ok. Because you have surplus money in your Directors Account to pay your salary – and so your mortgage and bills at home – without immense levels of financial stress.
But once you’ve done both of these and still have spare money, sat there in your business account…what next?
Well – there are loads of other things you can think about!
But I always focus on the things that will increase the quality of your life now or in the future.
#3. A modern, flexible pension (even if you don’t plan to ever really retire!)
One thing you could look at is putting money away into a pension (even if you don’t ever really plan to stop working or creating new things, you still want options and security when the time comes).
If you have a new modern flexible pension, you can pay in as an individual, but your company can pay into it for you as well. Which can be a really good way of taking money out of your business account without you needing to pay any tax on it, because it goes straight into your pension.
Admittedly, you can’t take it until you’re 55, but it’s safe and it reduces your corporation tax bill, like any other expense that you have!
#4. Build your safety net
If you find yourself with a surplus in your business account on an ongoing basis, you could also look to set up things like private health care or death in service benefit.
You know how if you work for a big company and you die, you get four times your salary paid to your loved ones?
Well, you can do that as a limited company director as well, for you and anybody else in your staff that you want to.
Which can also be a really tax-efficient way of using the money!
#5. Your personal emergency fund!
If you’ve got to the point where you’re building a surplus in your personal bank account – drawing out more money from the business than you need – there’s a few things to look at too (and yes, that includes holidays and luxuries!).
But the BIGGEST thing is building an emergency fund.
I know we’ve talked about this before, but it’s just so important that you’ve got some money you can dip into if your boiler conks out, your dog needs emergency treatment at the vets or your car needs repairs.
Because otherwise, you’ll end up dipping into your dream fund. And that’s no fun at all.
After that, you could look at longer-term savings like an ISA or paying additional money into your pension, so that your money has grown and kept up with inflation when the time comes.
If you’ve got a mortgage, you could look at overpaying and certainly if you’ve got credit cards or personal loans, these usually are a priority to get paid off.
But the key here is having a PLAN.
By using your money wisely, you not only end up with more money to spend each month, but you can actually have a much better quality of life (both now and in the future) without spending a whole load more.
I do know it all can feel pretty confusing though!
If you’d love some help, to create and implement the perfect financial plan for you – that’s where I come in. Just click here now for all the details!
We can sort it all in a single ‘Get It Done’ day together – or work together remotely over 5 weeks, if you like to mull things over and take action as you go.
Either way, you’ll leave with everything you need, to get from where you are now, to where you want to be.
And start getting that money you’ve worked so hard to make, working loads harder for you!
Until next time,
Claire
