Types of money

I used to think money was a simple thing. You got it out of the bank and it either jangled in your pocket or sat snuggly in your wallet until it became time to spend it. Money had a value which could be swapped for whatever could take your fancy. Someone once said to me ‘money is made round to go round.’ Of course it was always more complicated than that but of late the whole subject has taken on a greater complexity.

Running my own business, from a financial perspective started off quite simply. I sold stuff, invoiced and collected the money but now that I am into the realm of taxation it has taken on a whole new level of complexity. The money I have in the bank bears little or no relation to the amount of money the business has.

You see, there are different types of money. There is the straightforward type where customers have paid for services I have provided. Then there is money that I owe in taxation, such as VAT or Corporation tax, which I have in my account but don’t technically own. Then there is money that customers owe me but haven’t paid me. In effect this is my money in their bank accounts. Then there is the money that the company owes me in dividends that I cannot take out due to the cash owed and owing. I guess there is even the money that my customers need to accrue for work I have done for them even though I haven’t invoiced yet, or money I have paid for services that are provided over the rest of the year and haven’t yet received.

One simple business already has half a dozen types of money and that is before I consider hard cash or electronic funds. I’ll skip Bitcoin at this point. These are the things about running a business that you have to learn through experience.

My respect for accountants is on the rise.