Last Wednesday, I described sources of income for your business and this week’s post is about your business outgoings. They can be divided into two main types; your drawings and the costs to your business.
How you manage these depends on how you structure your business. For example, additional rules apply for incorporated businesses.
Drawings
Your drawings are the money you spend on your private life so this covers food, housing costs, transport – everything you need to live.
The point to remember is if your business breaks even on costs, it may not break even when you include drawings. So, it is important to think of your drawings as you would staffing costs. You need a business plan that takes your drawings into account.
Your business will break even when your income equals or exceeds your business costs plus drawings.
Remember though your drawings are not counted as business costs for tax purposes.
Business Costs
The costs counted for tax purposes depend on the tax legislation local to you. And it is always best to refer to your tax authorities’ guidelines direct and not through a blog. Your accountant will do this for you.
So, avoiding the fine detail of your tax returns, how can you decide what makes up the costs of running your business? You will need to find some or all of what follows to keep your business going, irrespective of whether you can count their cost against tax.
Business Development Costs
These are the direct costs to your business and most people recognise them as legitimate. They include things like supplies, office costs, staff, marketing, travel and subsistence. Some trades need special tools, clothing or premises.
In short this category covers everything necessary to actually do the work. If you are unable to do the work without something, it is a business cost.
Personal Development Costs
These are expenditure on what you need to keep up to date or learn new skills. They might include books, DVDs, training courses (live or online), coaching.
This may be a grey area but make sure you budget these costs because personal development is essential for all business owners. It’s all very well arguing you shouldn’t set out in business unless you have the necessary knowledge and skills but in reality, you cannot manage without personal development.
- Keeping up to date with changes in your chosen area of work.
- Whilst you might be equipped to deliver whatever you are selling, it does not follow you can do all the other things necessary to make your business a success. Marketing is one example of a skill you need to learn as you develop your business.
- Keeping going through difficult patches is a big issue for self-employed people and there are many self-help courses that provide support by teaching techniques to help you keep going.
- Someone with coaching support of some kind leads most successful businesses. If you are successful you still need to invest in support from others.
The Case for Self-Development
How much development does anyone need to keep going? It is possible to spend a lot of money on personal development. Some offers are better than others but commitment to personal development is important and if you can find something that works for you then build on it.
Being in business is about marketing and marketing is primarily educational. If you are setting out to educate the public, it is important you commit to self-education. You need to create space for strategic thinking. Daily pressures of keeping your business going can overwhelm good intentions to do essential thinking.
Some coaches offer not only organised knowledge or tuition in skills but also space to do your thinking. It introduces accountability. If you’re paying a coach, it helps to do the work if you want your money’s worth!
Many businesses get stuck because whilst they are able to work in the business, ie delivering their offer, they are poor at working on the elements of the business that will make it work in the market place.
This is why I offer a consultancy to local businesses and organisations, where I help them take their first steps in understanding what is involved in marketing their business.
Can you show how self-development has helped your business?