Difference between personal and startup finance

In my capacity as a financier, in my professional career I have spoken with many entrepreneurs and one of the most complex issues is separating personal finances from those of the business that we are trying to implement and this is a super important issue when we are talking about a StartUp.

Based on the above, let’s start by remembering how important it is to have a financial model that serves as a management tool and allows us to project the future results of our project. This financial model must include absolutely all the costs and expenses that our project will incur, without which it is not possible to operate; however, when we go into a detailed analysis of what the financial model includes, we see that many times concepts such as office lease, salaries, services and all this are not included, because we start from an idea that as today we have virtual work , this is not necessary or that as the project is starting, the salaries may be below the market and this is where we are making a tremendous mistake. One thing is that, starting out, we must make an effort so that the costs and expenses incurred by the project are as low as possible and another very different thing is that the financial model does not contemplate all the expenses that the project must incur.

What consequences can this bring to our project?

  1. They show the company’s management the reality of COGS in which the project incurs and therefore the decision making may not be the correct ones.
  2. The personal finances of the managers can be affected, assuming as personal, expenses should be at the head of the company.
  3. Third parties will have an erroneous vision of the reality of the business, being able to influence decision-making.

Here are some of these expenses that may not be included in your projections:

  • Leases: It is very common that we start the project working from home, in the end we must save, however, it is convenient to assign a value to the space that is used to develop the project and that this value is reflected in the model, which will be changing over time as income is presented. This issue should be reviewed with your accountant to avoid tax inconsistencies.
  • Services (Electricity, Water, cell phones): Same as the previous one, it must be included, but it is also recommended to check with your accountant to determine the best way to receive payment for this concept.
  • Transportation: It is common that, if you have a personal vehicle, its expenses (gasoline, maintenance, etc.) are assumed by the owner. In this case, the best way to include these expenses in the model and to recognize them must also be reviewed, unless this point is contemplated in the employment or service provision contract.
  • Salaries: Understandable that the initial salaries are not those offered in the market, however, this must be clearly defined in the model and in the employment contract. In this topic you can also find employment options that contemplate increases in salary, to the extent that certain goals are achieved. Now, it is convenient to remember in this subject, that handling service contracts for contracts that must be labor contracts, is an issue that can not only bring legal contingencies, but also affects the sense of belonging of the people linked to this form.

For the above, management alternatives can be found, so that the company does not assume a large outlay at the beginning, which should be reviewed with your accountant or legal advisor. Review these issues and do not allow your models not to include all the costs and expenses that the project would incur if it were not in your hands.

Efinti: Liquidity without Borders!