new business module

KEEPING RECORDS AND MANAGING FINANCES 123
separate recipients for the cash and/or separate bank accounts
(if applicable).
If money is taken out of the business, it must be recorded in
the cashbook so that the entrepreneur knows how much cash
is around to run the business. The best way to do this is, as
mentioned, for the entrepreneur to draw a regular salary.
If too much money is drawn out of the business, the business
may run into liquidity problems. This means it becomes incapable
of paying its debts and buying the materials it needs.
The business cannot operate any more, stops generating
profits and, in the worst case, ceases to exist.
Many small business operators do not pay themselves a salary.
They just take the money that is left in the cash register. This
means that their income is likely to vary significantly from one
week to another and that they are not really aware of how much
they actually earn through their business. In fact, this seems
to be one of the main reasons why many MEI businesses
fail. One way of preventing this is to introduce a salary for the
entrepreneur, i.e. a monthly amount the entrepreneur can take
out of the business without putting its operation at risk.
Entrepreneurs are strongly recommended to pay themselves
a salary. This forces them to think about how much they
believe they should get for their efforts. By monitoring and
analysing their records, they can easily determine whether the
business is able to generate the salary.
The advantage of a salary is that it regularizes the business
transaction and creates a stable pattern of expenses for the
business and a stable pattern of income for the entrepreneur.
Any profit made by the business should be seen as a bonus.
2.3 Building up savings
Entrepreneurs need to save in order to be able to replace
expensive equipment once it reaches the end of its economic
life-time. If they do not have the means to replace equipment,
their business will stall and stop generating income and profit.