It is not uncommon for business owners to get consumed with their business finances and ways to grow their startup while completely neglecting their personal finances. They spend all their time managing their small business and trying to wear many hats but when it comes to their own finances, they tend to become a bit careless.
You need to be just as savvy and focused on your personal finances too. Otherwise, you may jeopardize your financial stability and only realize it when it’s too late.
To help you avoid this, we bring you crucial personal finance tips for small business owners.
Start Planning Your Retirement
Have you started saving for your retirement yet? You may have spent all your money on your small business and you’re so passionate about it that you completely forgot about this. Perhaps you’re hoping your business will take off and you won’t have to worry about money in the future.
Unfortunately, not many small businesses succeed and only a handful make it to the fifth year. Given this statistic, you can’t afford not to save for your retirement. A good idea is to start saving for retirement as a self-employed individual because of the many choices available.
It’s better to choose any one of the retirement plans available than to find yourself in your 50s or 60s without a solid plan and financial security in your golden years.
Hire a Financial Advisor
Business owners can be brilliant when it comes to managing their business but a bit naive when it comes to their own finances. This isn’t anything new. You’ve become so focused on growing your small business that you’ve lost direction when it comes to other aspects of your life.
This is why hiring a financial advisor can be the best decision you make for your own financial stability.
If you’ve acknowledged the fact that you need to pay more attention to your personal finance, but you don’t know where to start, start there. Let a financial professional guide you through your finances and set up a strategy to meet your financial goals, whatever they may be.
Set up an Emergency Fund
According to all financial experts out there, saving enough to cover for 3-6 months worth of expenses is essential for everyone, small business owners included.
But this might sound like a lot of money, especially if you’re investing everything you can spare back into your business.
If you haven’t prepared yet, we strongly advise you to consider this a priority. Without an emergency fund, you risk losing so much more when your business hits a rough patch.
A problem with cash flow or an unexpected situation (such as COVID-19) can take you by surprise causing you to run out of money. You don’t want to risk the well-being of your family. Setting up an emergency fund and forgetting about that money (unless there is an emergency) will give you peace of mind knowing that you and your family will be covered for a while even if you lose income.
Since you’re a business owner, you might want to set up an extra-large emergency fund or a separate business emergency fund as well.
Create a Personal Monthly Budget
There is a reason why all financial professionals and magazines keep talking about the importance of budgeting. Budgeting is what keeps you out of debt.
You doubtlessly have a business budget set up but what about a personal spending plan? Even busy entrepreneurs need to take the time to create a personal monthly budget.
Budgeting will help you keep your finances in order, avoid overspending, and start saving a certain amount each month. All you have to do is stick to your budget. This might actually be very helpful given that you’re too busy as it is and don’t have the time to manage your finances. You can download one of the many free budgeting apps to help you out.
Invest Outside Your Business
Small business owners tend to spend every dollar they can spare to improve their business. While this attitude is admirable, it’s also very damaging to your personal finances. Instead of investing everything back into your business, diversify your investments.
Invest in stocks and other businesses. Don’t put all your money into one “basket”. If your business fails, you’ll end up losing everything you’ve invested.
We know it may be tempting to reinvest everything you earn into your business as you try to scale it but it is not a smart decision. Investing outside your business will leave some hope and source of income in case your business fails.
Track Your Personal Credit Score
Maintaining a good credit score is essential not only for your personal but your business finance too. Without a solid credit score, you won’t be able to get a loan when you most need it. It’s simple really, the better your credit score the higher your chances of being approved for a loan. You run a small business and if you can’t manage your personal finances well, you likely won’t be able to pay off your business debts and manage your business finances either.
This is what all lenders will think.
All banks and business creditors will look at your personal credit score before approving your loan application, so keep your credit score solid. Don’t skip paying your bills, even if you can’t make full payments. Pay at least a minimum amount every month.
Cut Expenses Where Possible
It might sound obvious but so many small business owners tend to forget about this. We know that keeping your business and your personal finance separate is a challenge as it is and you likely already have a strategy for cutting your business expenses. But now you need to do the same for your personal expenses.
Live within your means while you’re building your business. Your stream of income is probably irregular and while you may earn plenty this month, you may earn close to nothing the next. This means you can’t afford to splurge money on unnecessary things. At least not until your business is strong and stable enough to provide a steady income.
Michael has been working in marketing for almost a decade and has worked with a huge range of clients, which has made him knowledgeable on many different subjects. He has recently rediscovered a passion for writing and hopes to make it a daily habit. You can read more of Michael’s work at Qeedle.