Delivering Innovation

One of the most confusing things for new business owners can be knowing how to get money in and out of their company. Most new businesses lose money within a year of their inception. As a result, there are bills to pay, but no money in the bank account. Often the new business owner does not know how to bring money into the business to pay the necessary bills or how to record the money coming in.

There is a simple answer for this. All the business owner needs to do is deposit money from a personal account into the business account. This is called a capital contribution. It is not income for the company. It is a capital account that appears on the balance sheet.

Once the business begins to turn a profit and capital contributions are no longer necessary, there comes the exciting time when business owners can take money out of the business. For some new business owners, this can be confusing as well. We had a client who at the end of the year had $40,000 in her business account because she didn’t know how to get it.

Taking money out of your company is as easy as making a capital contribution. Just write yourself a check and report it as an owner draw. An owner’s draw is also a capital account and will appear on the balance sheet. It is important to record these withdrawals as an owner’s withdrawal because an owner’s withdrawal is not an expense to the business.

So moving money in and out of your business is as easy as writing a check or making a deposit. What can be a bit difficult is knowing how to record the transactions in your accounting software.

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