YNAB BLOG

Hey Small Business Owner. Your Frugal Self Called. They Want Their Money Back.

It’s deductible.

Oh, I run that through the business.

This is a business expense.

90% of you small business owners say something like the above to justify spending money on who knows what.

Marketers know this. If you have a value proposition for a business, you can instantly command a higher price because suddenly you’re talking about the hopes, dreams, aspirations, and burning desires of the small business owner…

If I were ever to package up YNAB for Small Business…I’d probably double the price. Products leveraged in a business usually create more value. You see this all the time.

But you, as a small business owner, need to be painfully aware of the fact that you are weak when it comes to resisting purchase that are “for the business.”

Your Cost Radar is Skewed

If your business is bringing in $300,000 gross, but your take home from that is $60,000 you deal with two very different psychological cost radars. Evaluating a $300 purchase through the lens of your $300k gross business is entirely different from evaluating a $300 purchase through the lens of your household (where you likely compare it to the $5k/month of take home you have).

You see what happens there? You’re simply less sensitive to pricing. Is there something beyond the difference in price sensitivity that drives your reckless business spending? Yes there is.

Business Money is “Special”

For some reason, you treat that money as special. Once it hits the household, oh sure, you watch those nickels and dimes like a hawk. But if it’s in the business account? And somebody comes knocking, selling you the next best thing to revolutionize your business…you go for it hook, line, and sinker. Because hey, it’s deductible, right? I mean, it’s a business expense. It won’t affect your household at all…

And you really like shiny things. So every chance you get, you upgrade your business phone to the latest and greatest because hey, it’s a business expense. It’s deductible.

(To compute the value of a deduction, multiply the cost of whatever thingamajig you’re buying by your marginal tax rate — that’s the tax you pay on the next dollar earned. Your CPA can tell that to you and some tax compliance software will give that to you in a summary report. The tax considerations of business expenses are legitimate. If your marginal tax rate is 35%, that’s a 35% discount on whatever you’re purchasing that can be fully deducted. However, the purchase needs to make business sense first. That’s your litmus test.)

You Report to…Yourself?

Another nice thing about the business coffers is that you don’t have to answer to your spouse to nearly the same level of detail when it comes to your purchases. So…the iPad you just bought (you’re going to be developing some software for it, so you needed one)…no need to talk to Julie your spouse about it. It’s a business expense.

The netbook you purchased to do testing of your software on netbook resolutions…that doesn’t go through the home budget so…Julie your budget doesn’t need to know about it.

The business account is like your personal playground where you don’t have to answer to anyone.

And you need to change that.

Your Business Needs A Budget (YBNAB…oh dear that doesn’t work)

Revolutionize your business finances by putting your business on a budget.

Apply the same YNAB Rules that you have personally, to your business. Magic will happen:

  • You’ll be pickier about where you spend your money.
  • You’ll glean insights into your strategy. If you want to know the strategy of a business, just follow the money.
  • You’ll be accountable to something besides yourself (because we know how well that works).
  • Doing the monthly books will force you to look at reality. Perhaps you’ll see that you need to change direction radically to stay in the game.

And maybe you could share the books with Julie your spouse and have them ask questions. Get a different perspective. Be forced to defend your purchases!

Be aware of the fact that your Business Self and your Home Self may be two entirely different people and your Business Self may very well be flushing hard-earned dollars down the toilet :)

10 Responses to “Hey Small Business Owner. Your Frugal Self Called. They Want Their Money Back.”

  1. Angela

    I’m saving this one. ; ) Thanks, Jesse. I have noticed that we are more apt to spend in our side business. We do our best to separate need vs. want. Sometimes it’s not so clear especially as we are just getting going and it seems like we have quite a few expenses. We have stopped paying out salary for a short period of time so we can invest in our equipment and projects.

    One of the best things we have chosen to do and have done in the past is put 25% of our salary into a SEP IRA. We aren’t paying out salary right now, but when we go back to it, we will do it automatically.
    I use YNAB for personal; hubby is Quickbooks certified and he uses it for business.Looking at both, I really appreciate YNAB. Thanks for continual improvement and a commitment to support! I opened Pro the other day and it looked so foreign! I LOVE 3 and look forward to whatever you come up with next.

  2. Ken Thomson

    I know that you must be right because I am feeling a little embarrassed right now.

  3. Gabe

    Awful. My wife SENT this one to me. It’s a good thing I don’t answer to her. It’s not like we’re married!

  4. Mike C

    I would LOVE to recommend YNAB for businesses! When can you come up with that business version?

  5. Independent Writer

    You have an unfortunate way of ferreting out all my secrets. And you just had to do it when I was in the midst of calculating how to deduct a new wardrobe as a business expense.

    Very good points though, and I promise I’ll do better henceforth.

  6. AZ

    I have been using YNAB for a year now and we love it. I currently create an expense category and sub categories for my business. But it would be great to be able to track my business income and expenses and see these as separate reports, from our personal income. That would be an awesome future “upgrade”!

  7. Moving YNAB to YNAB | YNAB

    [...] negligent to give someone money and not record what just happened.  I’ve written about how small business owners can throw frugality out the window, and I recognize I’m the first victim of that. Using YNAB for YNAB will make me [...]

  8. jason

    damn…i have to be accountable for upgrading my macbook pro and iphone every year rather than hiding these *personal purchases* under business expenses from my wife. this is a very very good post. i have just started using ynab for our small business.

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