Banking question

[Mechanic]

Hope this doesn't sound stupid......
I've only just started lodging money from jobs in my business bank account as i recently started up.You can tell what i do from my username!

Heres a simple scenario.....Customer wants battery fitted.I go to my personal account take out £50 and buy battery.I fit battery and charge £10 for fitting so thats £60.When lodging the money into my bank account do i just lodge in the £10 profit or the £60?

 

[GillespieBS]

You are operating a business so put all the business income into your business bank. The money you used to buy the part was your own personal money, so you have 'lent' your business money. Pay that loan back to yourslef when ever you want or leave it in to pay for the next part.

Remember, your income is a sale which forms your company accounts and will also incur tax.

HTH

 

[Mechanic]

Hi

So...is there a right way and a wrong way to do the particular scenario above.
If i put the £10 profit into the biz bank account and the £50 back into my personal account is this ok? or what is the correct way to do it?

Thanks.

 

[David Griffiths]

The correct way is to put the £60 gross sale into your business bank account.

You can then record the payment of the £50 as a cost, so the accounts just show the profit.

Ideally, you wouldn't pay for these things from your private account. For a start, if you keep on taking out the £50 then you won't have money in the business account for the next purchase, so will have to repeat the exercise in future. Better to pay a lump sum into the business account as "Capital Introduced" to provide funds for the day to day running.

 

[Mechanic]

I see.....reason i took it out of my personal account is the business account has just been opened and theres not much in there,plus i don't have an atm card for the biz account i have to go into the bank to withdraw money.

So the correct way would be to withdraw the £50 from my biz account then it will go back in with the £10 profit?

 

[KateCB]

You also need to charge more than the cost of the battery! If the battery costs YOU £50 the you would expect it to cost the customer £65 - thats the profit on the battery, PLUS the fitting.

When starting a business, it is usual to have some 'capital' - i.e. money that you are willing to invest into that business, that runs the business and buys its supplies; this should then grow as you make profit.

The worst thing you can do is mix up YOUR money and BUSINESS money - it can get awfully complicated working out who loaned who what, when/if it was paid back, where it came from in the first place and where is should actually be now - an accountants nightmare, not to mention that you usually end up out of pocket as you can't remember where you spent that last £20 you had in your wallet - did you spend it on you or a spark plug....???!!

 

[Mechanic]

If i lodge some money into the account as working capital what will it show up as on my bank statement?

 

[GillespieBS]

This is capital introduced. How will it show on your bank statement? Depends how you put it in. If you use a paying in slip it might come up with the paying in slip ref no, if you do an electronic transfer it may come up with your own name.

Is this the question you asked or did you mean the accounting treatment?

 

[Mechanic]

No that answered my question,thanks
Just wondering is there a correct reference for money like this when i lodge it in using lodgement book or can i call it what i want?

 

I see.....reason i took it out of my personal account is the business account has just been opened and theres not much in there,plus i don't have an atm card for the biz account i have to go into the bank to withdraw money.

So the correct way would be to withdraw the £50 from my biz account then it will go back in with the £10 profit?

Yes and maybe try and pay on your card for things then you can quickly tie it up? x

 

[Dibs_h]

You also need to charge more than the cost of the battery! If the battery costs YOU £50 the you would expect it to cost the customer £65 - thats the profit on the battery, PLUS the fitting.

You need to sit down and work out your overheads. i.e. what's the cost to you of being in business assuming a 5-6 day week @ say 10 hrs per day. Assuming 46 weeks a year (taking holiday\sickness into account). Include wages (before tax), rent\rates & electricity, even assuming that your tools need replacing every 5 years.

You might be surprised at the hourly figure you arrive at - but it'll be a good yardstick. And then as importantly keep a track of how often you are meeting it or exceeding it (or even coming nowhere close).

The biggest piece of advice I would give you - is when you quote a price for a job - track how long it takes to complete, i.e. what's the difference between actual and quoted. At least if nothing else - it will help you quote going forward.

Once you have worked out what you have the hourly rate you should be charging - don't be shy or otherwise of rounding it up to the nearest 1/2 hour interval.

Also - the markup on parts, make use of it.

Word of advice - if you are doing any work on any of the VAG range, get yourself an account with your local TPS - genuine parts at prices below anything the aftermarket suppliers can come up with. Good markup for you and a customer happy with the fact that you are using genuine\approved parts.

Whereabouts in the country are you?

 

[Mechanic]

Hi

Thanks for the advice but i just kept the figures simple in the example to get across the question.
I was thinking about it a bit more and since i don't have an atm card for this account could i do this.

Have a cash box with say £400 in it.When i need to buy some parts in advance i will take the money from the cash box.So i take out £50 for the battery and then when the job is done and payed for the £50 will go back into the cash box and the £10 profit into my bank account.This would save me a trip to the bank every time,then at the end of the year i can put the money from the cashbox into my biz bank account,would this work ok?