Running a business can make it hard to organize your finances. Unlike a salaried employee who relies on their pay coming into their account each month, when you own your own business you have to think further in advance. Anything can happen, and if something goes wrong with the business you want your personal finances to be prepared to handle the loss until things can be righted.
In this article, we’ll cover some of the ways you can best plan and manage your personal finances when you’re running a business.
Track Your Income
If you’re going to track your income, you need to track your expenses as well. Entrepreneurs have important expenses that must be paid in order to keep the business running.
You can deduct some of your business expenses on your taxes and this will lower your taxable income. It will also lower the amount of money that hits your pocket. As a result, most business owners actually net a lower income than what they gross.
You can track your expenses the same way you track your expenses. Doing this will allow you to audit your expenses regularly as well so you can make sure you’re not overspending on unnecessary costs.
Live Below Your Means
Saving requires a surplus of cash available in your budget. That makes it almost impossible to save if you are living at or above your means. Reducing your monthly spending to a level below what you could afford will help you to free up cash to save for a rainy day. Consider moving to a home that’s further away from the central business district to save either for your family or to reinvest into the future growth of your company.
Even when your business is having a good run, try not to be tempted to move to a bigger home or buy a brand new car straight away, locking yourself into a long term loan or mortgage. Rewarding yourself is important, but only reward yourself with an expensive purchase when your financials are stable and you know you can safely pay it off.
Talk to Your Partner About Your Business
Planning your personal finances is rarely a sole job. If you have a family or a partner, then you should regularly talk to them about both your personal finances and those of the business. A good and successful self-run business will be a symbiotic relationship with your personal finances, so even if your partner has nothing to do with the business directly their input could be valuable.
This is especially true when the business may require investment from your personal financial resources to grow and experience future gains.
Budget Out Expenses For The Year
Planning out your expenses in advance for the year will give you a much better idea of your financial situation. Knowing how much money you have available each month and what expenses you have, will allow you to plan your saving and investments accordingly in the long-term. You can even reduce debtor days to more easily plan out your budget.
You can budget and plan at various different levels, but at a bare minimum, it’s a good idea to keep track of the key monthly expenses such as food, rent/mortgage payments, car insurance, and other necessary payments. Make sure you also leave some spare room in your budget for emergencies as you don’t want to plan everything to the cent and be caught out in a few months when the car breaks down!
Schedule Regular Money Meetings
It’s important to schedule regular dates to review your income and cash flow situation. It’s no secret that most businesses are seasonal and it’s important to be aware of the cash flow at different times of the year. After you do your initial budget, don’t forget to review it at different points of the year.
If you fall off track, you can risk putting both your business and personal cash flow into jeopardy. It makes it even harder to get back on track if you face a downturn and you don’t have the cash flow to support your expenses, the troubles can cause to you having to cut your personal pay to support the business, which will put a burden on your personal life.
Try to do quarterly reviews to make sure your income and expenses are planned for each quarter.
Plan Potential Growth Plans for The Business
All businesses seek to grow and increase their revenue and profits. Growth in the business should be able to translate into a greater monthly budget spending capability for you and your family. But businesses also often require money to grow in the short-term. Plan for the future growth of the business, both in terms of cash required to grow and your personal finances.
Be sure to keep your plans flexible, though. While growth is an aim, it may not happen as quickly as expect and you don’t want to end up with a personal deficit.
calculated expenses – DepositPhotos