Entity Battle

Let us go to the very beginning of every business – the IDEA. Agreeably, every idea or any other synonym is brought about to provide a solution to a known or anticipated problem. Afterward, the idea switches gear through a driving force called PASSION, passion through thick and thin brought a business to light and a SOLUTION is birthed – wonderful!

Many entrepreneurs due to their experiences during the idea to birthing phases find it difficult to separate themselves from their businesses, separation here does not mean leaving the business nor does it mean a reduced passion. It means you are a separate entity completely different from the business.

One of the basic business rules known as Entity Concept can be paraphrased in a simple sentence that a business is completely different from any other person(s) including its owner(s). This 'home truth' is what many entrepreneurs have refused to come to terms with thus leading to Entity Battle; a needless and avoidable battle that does not do the business any good if the long-run vision is to grow the business.

Many advantages are attributed to the clear distinction of a business from its owner(s), let us take a look at a few:

1.     It helps to separate personal finance from business finance.

2.     It saves the business from tax complications resulting from mixing personal finance with that of the business.

3.     It helps to clearly show the performance of the business and what strategy needs to be put in place.

4.     It places the business in a good credit position when there is a need to borrow either for business operations or expansion.

5.     In the face of the Law, the business is distinctly different from the owners should there be litigation (except when the veil is to be lifted).

6.     The owners can plan personal finances and not at the expense of the business’ growth potentials.

Having mentioned a few advantages of distinctly separating the business from its owner(s), let us take a look at how the Entity Battle can be avoided.

•     Maintain separate bank accounts. This helps prevent muddling up the business money with your personal money. It is not good business sense to use your private account for your business, it can land the business in serious tax complications.
• .      Know your Capital. When owners put money into the business it is either an investment or a loan. Anytime you are taking money out of the business for personal purposes (except paying yourself), it is a drawdown on the investment or repayment of the loan. There must be a clear distinction between money loaned to the business and money invested into the business.
•       Keep proper records of the day-to-day transactions of the business, by doing this you can track all business transactions.
•       Pay yourself a salary, I know that your business is still very small, then pay yourself a token. This helps business owners draw the line between business and personal profits instead of haphazardly pulling money from their business. It also helps the owners to stay on their personal budgets.
•   Separate Business receipts from personal receipts. It is very important in running a business, and when there are shared expenses, these need to be tracked and shared as most practicable.
•  Register the business as a business name or as a company. The advantage of this is that customers, banks, creditors, and other stakeholders see clear distinctions between the owners and the business. Also, it enables the business to achieve opening the business account in its name.

 Conclusively, separating personal finance from that of the business could be a very difficult thing to do especially in the early days of the business. The truth is that doing the right things for the business also has a whole lot of advantages that put the business on the right path of growth as well as avoiding tax traps. Entity Battle should be avoided as much as it is practicable, the basic rule of Entity Concept should not be broken if the business will have better days in the foreseeable future.

 

Aderemi Gbolagade