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Personal Balance Sheet, May 2011 ($844,136, +9.6%)

This article was written by in Monthly Update. 21 comments.

Over the past few days, I considered making some drastic changes to the way I report my finances at the end of each month. I’ve been trying to decide whether it makes more sense to separate my business accounts from this report and report the numbers separately as I did a few years ago, remove the business accounts altogether, or leave the report the way it is.

I’m not sure how relevant my business bank accounts and receivables are to my personal finances. I transfer as little as possible between the business and personal accounts to keep my income taxes low, so most of the revenue stays “in the business.”

I didn’t change the report for May before putting together this article. These numbers include my business accounts and personal accounts commingled, like usual.

I’ll need to start making some decisions about how to better manage the business cash. I wrote about a friend of mine who was looking for better interest rates for his business’s cash and he decided to take advantage of business CDs offered by a local bank; I prefer to avoid long-term CDs with the rates currently so low. I’m not sure an investment account for my business is the right approach either, so I’ll ask around among colleagues to get some ideas.

I expected to see a seasonal dip in business income in May, like in 2009 and 2010, but that was not the case this year. Keep reading to see the numbers. You can see last month’s numbers have been revised upward; I expect the same to happen this month as more business invoices are calculated.

For those curious — and every month I don’t explain this, someone asks — I create the above report using a combination of Intuit Quicken and a Microsoft Excel template. Quicken provides the capability of tracking my spending and income, and at the end of the month, I export a custom report to a file compatible with Excel. I open the output and use the data as input for the template. I add a column for the latest month, update a few formulas to track the change percentages, and copy in chart into a graphics editor.

Cash in banks

I am trying hard to get all major clients to pay the business via direct deposit. I’ve been moving back and forth between my apartment and my girlfriend’s apartment in New York so much, it’s difficult for me to find time to get to the bank to deposit checks. As I said above, I keep most of the cash in the business and transfer only what I need to personal accounts. This means that whatever I don’t need is just left in cash.

I’m open to suggestions for how small businesses usually manage their assets when they are not distributed to the owners or shareholders. The large company I used to work for had entire departments dedicated to investing company-owned assets and still left a sizable portion of these assets in cash accounts, so my experience there isn’t much of a help.

Investment and retirement

Overall, my investments performed poorly during May, reflecting the overall stall in the market. The only investments that increased this past month were my Individual 401(k) at Vanguard, which increased only because I added to my investment in the Total Stock Market Index, and a small investment account at ShareBuilder that includes an investment in Toyota ADR. TM is up for the month but down from the recent peak earlier this year.

Accounts receivable

In May, there was a change with one of my major clients. Rather than paying the invoice within 30 days, this client be paying within 60 days. This will affect the accounts receivable balance starting in June. While this is creates an unfortunate delay, it comes with the benefit of eliminating a middle-man arrangement and increasing the value of the contract.

2004 Honda Civic

My car passed 131,000 miles on the odometer this month. I’ve been driving from New Jersey to Queens and back more often, and this past weekend, I drove to upstate New York for a friend’s wedding. It’s time for regularly scheduled maintenance, though, so in a few days I will call the dealership to schedule an oil change and a few other minor adjustments.

At some point over the past few days, most likely while the car was tightly parallel parked on the street in Queens, a red car hit my Civic’s rear bumper and left a large scratch. The last time I was at the dealership, I asked for an estimate to repair the smaller scratches and dents on the vehicle, but the price from their body shop did not make the expense worthwhile. I don’t plan to sell this car, so its appearance doesn’t usually bother me, but perhaps insurance will cover the cost of fixing this larger scratch.

The scratch changes my car’s condition from Excellent to Average, and with that change, I should take a significant hit in my valuation. I haven’t updated the value of the car in Quicken beyond my standard $100 decrease for depreciation.

Accounts payable

This includes my business bills that are invoices but unpaid at the end of the month as well as any credit card balances. I pay my credit card balances in full every month to avoid interest fees and late charges. I’m thankful that, unlike ten years ago, I earn enough income to cover the basic living necessities and no longer need to worry about going into debt just to commute to work every day. There was a big decrease in my business expenses in May, which resulted in the drop in accounts payable from last month.

Looking forward

Typically, business slows down in the summer. I have every reason to expect the same. Despite slower progress building the business, I have some new deals in place that will keep income very healthy. As far as expenses go, June will also be slow. I see no major expenses coming up this month. I plan to visit family in California for a few days, but that trip is already paid for. I expect to take a vacation later this summer, so I’ll likely plan for that this month.

What are your plans for the summer?

Updated March 6, 2012 and originally published June 1, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 21 comments… read them below or add one }

avatar 1 Anonymous

Nice growth! You are right to look for investments for your cash. I am sure you do not need all of it to be so liquid.

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avatar 2 Anonymous

For my wife’s business account (at Fidelity), I manage the cash by investing in two bond funds: JASBX and FFRHX. The Janus fund is short-term (less than 3 years), fixed income and fairly conservative. It’s current yield is about 3%. The Fidelity fund is a floating-rate fund. Between the two, I get pretty good yield and diversification. If rates are climbing, the floating-rate fund does well while the fixed fund suffers a bit and vice-versa when rates are declining.

While this is a bit more risky than CDs, I’m not locked in for a long-term period (the Fidelity fund has a 1% early redemption fee of less than 60 days, however). I usually put 1/3 in one fund, 1/3 in another and leave 1/3 in cash for her business expenses and paying estimated taxes (the “core” cash account at Fidelity yields about 0.07% so essentially zero).

Regarding your problem cashing checks, Fidelity’s iPhone App was just updated and allows depositing checks with a photo. I tried it for the first time this morning and it shows that it already hit (cool!) but I did have to submit it twice because it said the photo was too fuzzy the first time. But that will definitely improve my check deposit process.


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avatar 3 Luke Landes

Thanks for letting me know about Fidelity’s business account — I’m surprised Vanguard doesn’t offer something similar. This is the type of account I’m looking for, and the fewer fees, the better.

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avatar 4 Anonymous

I would say that though you are keeping cash in your business for tax purposes, that cash is still relevant to your personal balance sheet. Like your car, it’s an asset that you are unlikely to liquidate/use for expenses, but it is still available should you need to use it. The money being in the business is just labeling really, tax implications aside. Perhaps calling out business accounts separately might make sense, but I think it’s still valuable to include them somehow.

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avatar 5 Anonymous

I’d keep them separate (business and individual). Once you take distributions from the business you can start including it in your individual accounts. I say this because you seem to want to let the businesses grow. I also assume that you are tracking business growth for each company on the company’s books…

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avatar 6 Anonymous

Are you worried at all that leaving so much cash in your business leaves your assets vulnerable to legal challenges? For example, somebody could sue your business for practically any reason they wanted. I’m not sure how you’ve structured your company, but if it’s a pass-through entity like an S-Corp would there be any tax consequences for distributing some of the money to the owners?

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avatar 7 Anonymous

The tax part of it is easy to answer: If it’s a pass-through, the owner will pay taxes on the profits of the business each year, regardless of when the profits are distributed to the owner. The owner could take none, part, or all of the profits from the business and it wouldn’t affect the amount owed in taxes. Excess profit not taken from the business shows on a balance sheet as “retained earnings,” which have already been taxed in a previous year.

But the liability thing is a good question… If one purpose of the corporation (VS say, a sole proprietorship) is to limit liability to the owner, then it seems like the owner would want to keep retained earnings in the business at a minimum, taking as much from the business as possible.

I’ve struggled with this same question myself.

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avatar 8 Anonymous

What do you mean by “I transfer as little as possible between the business and personal accounts to keep my income taxes low”?

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avatar 9 Anonymous

Would love to hear how you’re keeping taxes low by transferring as little as possible between business and personal…

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avatar 10 Luke Landes

Filing as an S Corporation can greatly reduce the self-employment tax. I wrote more about it here.

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avatar 11 Anonymous

I’m familiar with the S-Corp, and I read your post about it. But yeah, that speak to how you keep taxes low by not transferring money between business and personal. I was hoping you actually had some insight about that.

Anyway… If you’re an S-Corp, you should add your business’ retained earnings to your personal spreadsheet as that is prior years’ profit that you’ve already paid taxes on. Drawing it from your comapny doesn’t affect your current tax burden.

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avatar 12 Anonymous

*doesn’t speak to, that is

avatar 13 Luke Landes

Well, I’m not particularly versed in this area of tax accounting, and I rely on my tax accountant to handle the details. If I’m wrong about what I’ve stated, I’m either misunderstanding the issue or I’m going to need to find a new tax accountant.

avatar 14 Anonymous

Ok, never mind that.

But with regard to your personal net worth spreadsheet, I think the only question (perhaps for your accountant) is how much retained earnings is on your business’ balance sheet… That is the number that should flow from your business to your personal spreadsheet. Other numbers related to income/expenses (P&L) for your business are pre-tax, and will skew your spreadsheet.

For instance, you’re adding $120k to your assest for A/R and $9k to your liabilities for A/P. If these come from your business, your spreadsheet is skewed too high and doesn’t paint a complete picture.

avatar 15 shellye

Nice growth – keep up the good work.

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avatar 16 Anonymous

I actually had the same question as Justin & Kyle….

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avatar 17 Cejay

Well, I for one am still impressed that you are brave enough to put it all out there for us to see. Does all the income come from Consumeris Commentary or do you have other things going ? Keep up the great work

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avatar 18 skylog

great always it seems! if it were me i would keep them separate. it just seems the better way to me. as for the summer, going to try to get outside more and keep working on getting in better shape. i have several small trips planned, which i am very much looking forward to. need ti refresh the batteries.

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avatar 19 qixx

I’ve decided that each month i’ll update you on where i am at as well. And i’ll try not to take half the month to make my update. I have CC Debt, Student Loans and a Car with Loan, Checking and savings accounts, a small retirement account from a previous job and not much else. This is my starting point here.

Assets $16,100.90
Liabilities -$38,232.34
Total -$22,131.44

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avatar 20 Luke Landes

Thanks, qixx, I look forward to seeing your monthly updates!

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avatar 21 Luke Landes

I see what you’re saying. Yes, I think your thoughts are confirming my impression that the net worth is skewed too high. I’m moving my business stuff out of Quicken and into a separate QuickBooks file, so that’ll help me differentiate, and I’ll look into accounting for retained earnings to see how that will help me give myself a better picture of my finances.

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