Running a business isn’t a 9-5 role, and as an entrepreneur, you will inevitably be tied up with your business in more ways than one.
This includes your personal finances. Most entrepreneurs will use their personal finances to fund their start-up, and it’s well-known that, especially in the first couple of years of operating, salaries may become a thing that only people in jobs have, and credit card debt or loans may be taken out in order to help the fledgling business survive. As the owner of a business, you will probably pay yourself last, and if there’s not enough in the pot, then it’s your personal finances which will take a hit.
Because of this, it is important that any business planning, forecasting and management also takes into account personal finances too. Many entrepreneurs don’t see the importance of personal accounts when it comes to managing business finance, but as an accountant, I know that it’s vital the two are managed in conjunction with each other, to fully prepare and protect against any uncertainties.
After all, with a high proportion of small businesses that fail each year, the last thing you want to end up with is a business that you have to close down, and no way to pay your own bills because there’s nothing put by.
For me, therefore, personal finance planning is as important as business planning. If you’re looking to start-up a business or take it to the next level, then here’s my advice on how to manage your personal finances:
• Plan for lean months. The nature of business is that there will be good months and not so good months. In the good months, try not to go out and buy the latest BMW on a whim, put some aside and/or reduce some debt, so that you have a buffer should you not be able to pay yourself as much in future months
• You still need to think about your retirement. Although it’s difficult to focus on a time which may be many years ahead when you are trying to earn enough to put bread on the table, neglecting planning for the future will mean you potentially could be in the same situation when you have to retire. Even if it’s a little, try and put some aside. Speak to an IFA about where best to put it. I know a good one if you want a recommendation
• Keep business and personal separate as much as possible. You need to protect the one from the other. If your personal accounts are suffering, then you need to protect the business, and if the business looks like it might be failing, your credit report and score shouldn’t have to suffer as a result. Just because you are a one-man (or woman!) band, doesn’t mean you shouldn’t be any less professional with your finances. A CEO of a big multi-national company wouldn’t mix the two, so why would you?
• Keep a budget for your personal finances as well as your business. Cash flow forecasting is so important for the health of your business, and you should give the same importance to your own finances too. Treat it as though it is another business. If you have more going out than in, then you need to have a clear handle on what that means, and how you are going to fund any potential shortfall
• Get some insurance in place. You are your business, and if you can’t work, what happens then? You need to ensure that should the worst happen with your health, then there’s still money coming in that can help to pay the bills and provide you enough to live on. The last thing you need to be worrying about is unpaid bills if you need to focus on improving your health
• Make everything as simple to manage as possible. With so much on your mind, you could easily forget to pay a bill, we’ve all done it! Wherever possible, try to pay by Direct Debit, so that payments will tick over, you won’t fall behind and adversely affect your credit rating, which could also affect your ability to get finance for your business in the future too
• Think about diversifying as much as possible. If something happens to one business, then you don’t want to be left with a panic and the stress of how you are going to cope. Many more entrepreneurs are considering additional revenue streams, the old adage is true here, don’t put all your eggs in one basket!
Finally, if you need help with planning your own personal finances as well as your business, then I can help with that too. It’s important to be clear and on top of what’s going in and out of your bank account, whether it’s your own, or your business’.