The Public Liability Insurance Blog

Treating business money as if it were your own

Bank vaultReckless bankers should be jailed according to the Parliamentary Commission on Banking Standards. The commission hopes that these measures would be an incentive for bankers to be less reckless with bank money.

Realistically, in an ideal world they should have already been doing this and we would be surprised if there are highly professional and moralistic bankers up and down the country spluttering in indignation at the idea that this is not the assumed standard already. In any business situation, you will often be dealing with money that is not strictly speaking your own but this should never diminish your diligence with these funds in any way shape or form.

If you run your own small business, the status of the money running through it is slightly different. Chances are that the money that you are spending in the company can more directly be traced to you and is arguably yours anyway, but once you start receiving funding, even this direct link can feel like it is diluted a little. You might feel yourself getting more reckless and taking bigger risks with your available money when you start to think that it’s not really yours and that losing it doesn't matter quite so much.

There is an old marketing axiom (that too few in the trade live by) that you should spend every pound as if it were your own. If you can’t justify your spending in some way, then you shouldn’t be taking those decisions.

That doesn’t mean that one should never take a risk, but instead, that risk needs to be quantified and a backup plan needs to be formulated in case the risk doesn’t pay off. If you bet the farm and lose, you are simply another failed business that either didn’t think things through or simply got greedy. Luck plays a part, but when you know you can be unlucky you should be treading more carefully.

Treating the business as your own and considering the finances as if they were your own can lead to a little extra stress and worry, but in the long run it puts you in a much stronger position. There’s a lot you can protect and safeguard against once you are educated in some of the potential risks you face.

We will always say that taking out business insurance is a good first step (for obvious reasons) but it is more than that. You need to get into a protecting and more cautious state of mind. If you can do this and at least temper some of the risks that you will inevitably have to take along the way, you are much more likely to succeed.

Your business finances are different from your personal finances, but ultimately, money is money and income vs. expenditure always follows the same rules.

Written by Richard King for YOUR Insurance, a broker specialising in public liability insurance for small businesses.

Image credit: The vault of the Winona Savings Bank by Jonathunder, via Wikimedia Commons and distributed under the Creative Commons Attribution-Share Alike 3.0 Unported license.