Why it pays to keep your finances separate
When you’re getting a social enterprise off the ground, it’s pretty common for your money and the organisation’s money to get mixed together.
You pay for something on your own card. You transfer money across to cover a bill. At the time, it can seem easier to just use one account and get on with it.
But trouble can arise later, when you’re trying to work out how the organisation is actually doing finacially.
Why separating the two helps
When personal and organisational transactions are mixed together, some basic questions become harder to answer:
How much money does the organisation actually have?
Is it bringing in enough to cover its costs?
How much am I personally putting in to keep things going?
What can we realistically afford over the next few months?
Keeping things separate gives you a much clearer picture. It also means less untangling for you, your bookkeeper or accountant, and better information when you’re making decisions.
And if you’re looking for funding or finance, it becomes even more important. A funder or investor needs to be able to understand the organisation’s financial position and how it is performing.
What if you’re putting in your own money?
That’s not unusual, particularly when you’re getting started. The important thing is being able to see it.
If you pay an organisational expense yourself, keep the receipt and record it. If you put money into the organisation, make sure that’s recorded too. Your accountant or bookkeeper can help you work out how it should be treated.
Otherwise, you can end up with an organisation that appears to be supporting itself when you’re actually filling the gaps with your own money.
Seeing how much you’re personally contributing can also help you work out whether something needs to change – perhaps your costs, your pricing or where your income is coming from.
get started now
Three things you can do now
You don’t need a complicated finance setup to get started:
1. Use a separate bank account
Keep organisational income and expenses together and away from your personal spending.
2. Record money you put in yourself
Don’t let personal contributions disappear into the day-to-day finances.
3. Check your numbers regularly
Get into the habit of looking at what’s coming in, what’s going out and what you actually have available.
Learn more with Xero For Good: Financial fitness
Want to feel more confident managing your organisation’s finances?
Sefa has partnered with Xero to bring Xero For Good: Financial fitness to Australia’s impact sector. It’s a free library of short videos and practical guides that you can work through at your own pace, with many taking just five minutes.
Why not start with Separating your finances, then explore other topics like cash flow, budgeting, financial statements and common financial terms.
And if you want some extra help, you can apply for free one-on-one mentoring with an accountant or bookkeeper from the Xero advisor network.