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Independent business: financial conduct between home and business

Author: Tal Haran

Have you decided to start your own business? You should check with yourself that this is indeed the right decision. If you decide to move forward based on thinking and planning – then first have a lot of success. Now – some practical tips:

  1. Bank account management: Decide whether you manage two bank accounts (one for business and one account for home) or one account shared by business and home.
  2. Financial ability: Starting a business involves a financial investment and sometimes several months pass when there is no income or insufficient income. It is necessary to check in the family framework what period of time it is possible to exist without the expected income from the business (savings, income of the spouse, help from parents, sale of property, etc.).
  3. Profit and loss: how much money the business should earn – what is the minimum necessary, what is the reasonable estimate and what is the dream. You should also define how much you need to stay in your business account to feel confident enough to transfer more than the minimum amount to your personal account. This amount is the “safety range”.
  4. The safety range: How many months can you continue to manage the family finances even before the business starts making money. This range of confidence varies from family to family. There are families whose security range will be equal to a five-month salary, and there are those who are much less.

Reference to receipts

  1. In the first period in which there are receipts, no more than the minimum need defined at the beginning should be transferred to the home account in order to have enough money for the day-to-day management of the house even in months when the business makes little profit. It is advisable to transfer from your business account to your personal account a fixed amount of money every month.
  2. Remember that the income received is gross. The entire amount cannot be treated as salary. The following sections represent the gross downloads. What remains after the deductions is the net:
    1. If VAT is paid, it must be lowered.
    2. Income tax should be lowered in the amount of the prescribed advances.
    3. Social Security must be lowered according to the prescribed amount.
    4. If you regularly deposit into a pension/study fund, these amounts should also be lowered.


calc Lamoran – a calculator for calculating the monthly profit from an independent business

  1. When starting to receive payments for work, it is recommended to close with a short-term deposit the amounts that must be paid to the authorities for each receipt (VAT + percentage of the amount calculated as an advance for income tax and National Insurance) so that a situation does not arise in which by the time the date on which these expenses must be paid there is no money left in the account.
  2. It is recommended to pay National Insurance by standing order, every month.
  3. If the receipts from the business are irregular, each family according to its “safety zone” should make sure that it has the range of security in the business account before transferring a sum of money for a large expense from this account.

Running an active business

  1. During the year, it is advisable to check whether the income received is consistent with the assessment according to which advances to income tax and National Insurance were determined. If income is on the rise, it is recommended to contact institutions and increase down payments. If the income is significantly lower than the estimate at the beginning of the year, you can apply to reduce the amount of the down payments.
  2. Conduct vis-à-vis the tax and social security authorities is annual (calendar year). Both the IRS and Social Security return excess funds paid throughout the year, it is better to pay a little more and get reimbursed than to receive a payment requirement at the end of a year for the accumulated debt. Debts accrue interest.
  3. You have to decide what to do with excess money in your business account. Whether to invest in the business, whether to buy inventory (equipment and materials), whether to increase the transfer to the private account. The decision must be made jointly with the family. It is also possible to use this money for large expenses that have been postponed until now and, of course, to put money aside for a rainy day.
  4. The business account can be overdrafted from time to time – but the amount of money decided to be used as a “salary” must be transferred to the private account in order for there to be a permanent family income.

Working according to organized principles will save you a lot from the uncertainty that characterizes a business at the beginning of its journey. If uncertainty persists for too long, or your safety zone is particularly short, you may want to consider getting business advice.





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