Cash, bank and the money in your pocket: three separate pockets

Selin Hanım the hairdresser and her bag

Selin Hanım runs a hair salon. Customers sometimes pay in cash, sometimes by card. The cash goes into the drawer. From the drawer, Selin Hanım takes money for hair dye, for lunch, and for her daughter's school fees. Card payments, meanwhile, land in her personal account, because that is how she set up the POS (card payment) terminal.

At the end of the month her mali müşavir (certified public accountant) asks: "How much did you earn this month?" Selin Hanım does not know. The money is all in one bag, all mixed together.

Three separate pockets

Imagine you have three pockets:

1. Cash box (kasa): The cash the business holds. The drawer, the till, the box of coins.
2. Bank: The money in the bank account opened in the business's name. Card payments and transfers go in here.
3. Your own pocket: The money you set aside for the rent on your home, your child's school, your holiday.

The first and second pockets belong to the business. The third pocket is yours. Legally, in a sole proprietorship this separation is blurred: you are the same person. But for accounting and good order, you should keep them separate.

Why keep them separate? (Even in a sole proprietorship)

You see profit and spending. When everything is in one pocket, the answer to "Where did the money go?" gets lost at the end of the month. When they are separate, you can look at the bank account and see how the business is doing.

Your accountant's job becomes easier. A bank statement is like a set of books for the business that has written itself. If personal spending is mixed in, every line has to be sorted out one by one; the risk of mistakes goes up.

You are more at ease in a tax inspection. If a tax inspector sees spending in the account that has nothing to do with the business, they will ask questions. A clean account means short questions.

It builds trust for debt and credit. To be able to say to a bank or a supplier "this is the flow of this business", the business account needs to make sense on its own.

What does taking money out of the cash box mean?

Selin Hanım took 2,000 lira from the drawer for her daughter's school fees. This is withdrawing money from the business: spending the business's money on something personal.

This is not an expense. Hair dye, rent and electricity are expenses. School fees are not paid for the business, so they cannot be recorded as an expense; the law also says plainly that money the business owner withdraws from the business does not count as an expense (Income Tax Law, Gelir Vergisi Kanunu, art. 41). The money withdrawn must be noted on a piece of paper or recorded as a separate item; otherwise at the end of the month the cash box looks short and nobody knows why.

In a sole proprietorship the business's profit belongs to you anyway, so the money you withdraw is not a "salary". In a limited company (limited şirket) it is different: the company's money is not the partner's money. If a partner takes money from the company, it is recorded as something like a debt the partner owes the company; in most cases the company has to charge interest on it, and extra tax may arise. If a partner is going to take money regularly, this is usually done as a salary (through payroll, bordro) or as a profit share. You can read about this in the article Sole proprietorship or limited company? (in Turkish). In a limited company, ask your accountant before taking any money out.

A small experiment: this month's accounts

Selin Hanım decided to set up a system. In the first month she did this: she directed every customer payment into the business account. She wrote down every bit of cash taken out of the drawer in a notebook. At the end of the month she looked at her account and, for the first time, saw a clear result: "This month 40,000 lira came in, 31,000 lira went out, 9,000 lira is left."

She had never been able to know this in previous months. The figure may not be large, but now she had a figure. That is the first condition for making decisions: seeing your own position in numbers.

A practical routine: four rules

• Open a separate bank account for the business. Direct the money coming from customers into it.
• Write down every amount that leaves the cash box, on paper or in a bookkeeping program: who took it, what for, how much.
• If you have a sole proprietorship, withdraw a fixed amount for yourself once a month and transfer it to your personal account. Leave the rest in the business. (In a limited company, ask your accountant before doing this.)
• Do not use your personal card for business spending, or the business card for personal spending.

The cash box is counted every evening

At closing time in the evening, count the money in the cash box. It should match the figure in your records. If there is a difference, do not leave it until tomorrow: you will remember that day, but a week later you won't.

Where does credit card and POS money end up?

For card sales, the money goes into the account the POS terminal is linked to, a few days later. If that account is not your business account, the business's money builds up in your personal account. This is what happened to Selin Hanım.

The fix is easy: go to the bank you signed the POS agreement with and tell them you want to link your business account. It is done once, and it causes no trouble in the months that follow. After changing the account, give the bank statement to your accountant at the end of the first month; seeing the old and new periods together makes their job easier.

In short: at any moment you should be able to say what is in the cash box, what is in the bank and what is in your pocket. If the answers to these three questions are clear, your business is under control; if one of them is unclear, that is the first thing to fix.