Managing your personal finances can seem straightforward when you’re working for someone else. But as an entrepreneur, there’s a lot to juggle and many expenses to cover. One major responsibility is managing your personal finances in a way that allows your business to thrive.
Cash flow is everything when it comes to getting a company off the ground. There is a delicate balance between having enough money for the business and paying yourself a sustainable salary. To help you avoid common mistakes and support your entrepreneurial efforts, we provide key tips to help you manage your business finances and put strategies in place that promote long-term success.
Separate Business and Personal Expenses
While in theory it’s easy to keep business and personal expenses separate, doing it in practice is a different story. In an effort to grow their business, many entrepreneurs forego a salary or pay themselves the bare minimum – only to end up dipping into their business accounts and taking resources away from the company.
What some entrepreneurs don’t realize is that keeping your personal finances in order is the foundation of a healthy business. It all starts with asking yourself the following questions:
- How much money do I need to cover my personal expenses?
- Can the business afford to pay me this kind of salary?
- Could I adjust my lifestyle to receive a smaller paycheck?
- Are there any expenses that the business can cover for me?
Stick to Your Budget
Keeping your monies separate is only the beginning. Once you have set up and organized your financials, it’s important to stay disciplined. This means taking an honest look at your family budget – not from a restrictive standpoint, but to understand your personal financial needs and make sure they are met.
These are some of the personal budgeting habits that allow entrepreneurs to grow their companies:
- Keep your personal expenses below your income
- Automate as many bill payments as possible
- Include saving and investing in your budget
- Revisit and adjust your budget on a regular basis
Care for Your Credit
As an entrepreneur, access to a personal credit line may allow you to finance business expenses without tapping into your own savings. This is especially true when your company is just starting out or expanding.
Maintaining a good credit score and making responsible use of credit can make all the difference when your business needs cash to:
- Finance operations
- Cover payroll
- Purchase new equipment
- Move to a new location
Keep an Emergency Fund
Variable income is a reality of entrepreneurship. While some months are very profitable, there are others when you may come short. Whether you’re in a seasonal industry or have a fluctuating business model, an emergency fund is the best way to shield your personal finances from these ups and downs.
Consider Other Sources of Income
Diversifying your revenue streams is a tried-and-true strategy to lower your personal financial risk as an entrepreneur. This can take away from the stress of running a company for profit and give your business more time to grow. How you set up your other sources of income depends on personal preferences and circumstances.
For serial entrepreneurs, this means setting up multiple businesses that are independent of each other. For investors, income diversification could come from passive income or rental properties. Others prefer to keep a full-time job while running their business on the side and creating a plan to transition once the company is more established.
Putting your retirement savings on hold while the company grows is a common mistake that entrepreneurs often regret. While it’s important to focus on your growing business, you must also plan for the future.
As a business owner, you can take advantage of SEP IRAs and Solo 401(k)s to meet your retirement goals and prioritize your personal goals. With the help of a financial advisor and tax planner, you can determine which type of retirement account is right for you and how much you can afford to save on a regular basis.
Strengthen Your Business Financials
The intersection between personal and business financials is inevitable for most entrepreneurs. Just like a solid personal foundation supports your business goals, stable business accounts also allow you to thrive as an individual.
The following are some of the steps you can take to strengthen your business:
- Get professional advice from business consultants
- Outsource the business tasks that you cannot handle to focus on what helps you grow
- Establish the proper entity type to take advantage of tax benefits
- Budget for major business expenses
- Prioritize recordkeeping and accounting
- Run a lean operation
- Focus on sustainable growth
- Look for saving opportunities
- Learn more about business finance
- Make sure you have proper insurance coverage
Personal money management is a critical aspect of overseeing your finances as an entrepreneur. Whether you’re making $100 or $100,000 a month, it’s something you should think about from the earliest stages of business development. With proper guidance and careful planning, you can find that balance to make your money work for both your business and yourself.
To learn more about how CornerCap can help you navigate the entrepreneurial journey, schedule a consultation today.