You don’t have to graduate from a top business school to know that managing money is one of the most important skills a business owner can have. One of the main reasons that so many start-ups fail is because the owners get overwhelmed with the financial burden and learning how to manage their expenses. When you thought up the idea for your business, it’s likely you were imagining long-term success. Employees, office buildings, customers – it all begins with you and your ability to multitask and keep many different aspects of a company afloat. How can you possibly take on that responsibility without getting a handle on your personal finances? The good news is that your personal finances and your business finances benefit from the same set of rules. All you have to do is know how to apply them.
1. Keep Your Finances Separate
Obviously, your small business will be financed primarily by your personal money at first, at least until you start generating revenue. But even from the beginning, you should have a plan in place to keep your accounts separate. One of the first steps a small business owner should take is to visit a site like Merchant Maverick and look into finding a good merchant account provider. Ideally, the profit from your business will go into your merchant account, and the expenses will come from there as well. Having distinct business and personal accounts is a smart idea, especially when tax time comes around (See A Tax Guide for the Self-Employed for more information).
2. Improve Your Credit
It’s easier said than done, but when you’re looking for business loans and even merchant accounts, your personal credit can make a big difference as to whether you get approved and how many obstacles and extra fees the banks will stick you with. Studies have shown that small business owners have improved their credit profiles across the board in the last four years since the recession, because it’s becoming increasingly difficult for applicants to get loans. Simple things like paying your bills on time and working to consolidate your debt can help you. Being vigilant with the health of your personal finances will make your business more successful.
3. Make a Budget
In order to fit the expense of starting a business into your life, you need to have a good idea of what you spend every month and what your personal expenses are. It doesn’t have to be set in stone, but deciding how much money you can afford to set aside for extra purchases. No matter how much you have set aside, every purchase, both business and personal, should be absolutely essential. Think about what you need and try to stick to the list as best as you can.
4. Don’t Borrow Against Your Business
When you start making money from your start-up, you might think about using it for your personal expenses, but you should think twice, especially if you have even one employee counting on you. Borrowing against your business can start a vicious cycle, where you are continually using business expenses to cover personal expenses and vice versa. The money in your business account is there to keep the business running. You should pay yourself a set salary as soon as you can afford to, but be cautious with investing extra. If you get out of the mindset of thinking of your business’ money as your personal income, you will have a better chance to make more of it.
5. Get a Good Accountant
Many small business owners underestimate just how much the right accountant can do to help them manage their tax liability and their expenses all year round. An accountant can also save you time and help you maintain a good balance between business and personal finances. You might have to take some time looking around for the best candidate whose fees you can fit into your budget, but paying a professional for their sound advice usually saves you money in the long run.
It could be a very long time before your business expands enough to make it feel like it’s not linked directly with your personal finances. When you’re the owner of a start-up, it just comes with the territory. But even the smallest business should be run as if it were a huge corporation. That means you should be able to manage your personal expenses well enough to not interfere with making a profit. After all, if you’re not in a position to make success of your company a priority, who will?
Amy Nielson is an avid blogger who writes often for tech sites. You can follow her on Twitter @NielsonAmy.
Also See:
- Does Your Small Business Need Accounting Services?
- A Tax Guide for the Self-Employed
- Selling Your Business
- Open Your Own Restaurant
- 10 Ways to Make Money Online
Resources from Amazon
- Accounting and Finance for Your Small Business
- Small Business Financial Management Kit For Dummies
- Financial Management 101: Get a Grip on Your Business Numbers (Numbers 101 for Small Business)
- The Big Book of Small Business: You Don’t Have to Run Your Business by the Seat of Your Pants
- The Small Business Bible: Everything You Need to Know to Succeed in Your Small Business