Personal Finance Tips for Small Business Owners
As a business owner, having a strong understanding of your finances is important for not only your business but for your personal life as well. Knowing you can manage your own bank accounts, as well as your business’s finances will ensure your financial success and future are secure.
New business owners have the task of learning and mastering all of this on top of creating their business from the ground up. As such, they’re dealing with a wide-variety of questions swirling around in their heads. How do you track your finances? How do you keep them separate from your personal finances? How do you not feel completely overwhelmed constantly? Entering the world of entrepreneurship is exciting and new. It welcomes you with experiences you might not have known to exist. If you’re thinking of becoming a small business owner in 2023, check out these tips below to help you start the year off with a financial foundation for success.
Stay Organized
A key tip when starting a business is that organization is vital to your success. In regards to your finances, this is even more true. Having solid financial literacy skills in your personal life is great, but you need those skills to translate to your business as well. Maintaining your books, budgeting for the appropriate expenses, and paying yourself and your employees are additional tasks you have to account for as a business owner.
While you learn to tackle these new aspects of your financial portfolio, make sure your personal and business finances are as separate as possible. Clearly delineate your accounts to avoid accidentally spending money meant for the business on yourself or investing more of your personal funds in the business than you’re aware of. Investing in the services of a financial advisor can help you maintain the line between personal and professional expenses, which will be beneficial overall, especially when it comes to tax season.
Manage Your Personal Credit
As a business owner, your own credit health can potentially impact your company’s longevity. In short, your credit score as an individual will play a role in your business’s ability to receive loans. During the beginning stages of your company, you’ll need to rely on your own credit score for personal lending because small business loans are harder to receive in those early years. As your business grows and you have a few years of success under your belt, applying for those business loans will be easier to do.
It’s important to note that while you’re applying for a business loan, lenders bring your personal credit into the equation when making their final decision. Aspects of your credit health that’ll affect your approval include your credit history and credit utilization. Having a keen understanding of your credit score and your financial situation will help you determine if there are areas of your financial wellness you need to nurture.
Build an Emergency Fund
Emergency funds are essential for the sake of your business and your livelihood. Having a nest egg for those unforeseen circumstances ensures you can withstand whatever comes your way. You can build multiple emergency funds, such as one for your personal life and one for your business, all while using the same tips and tricks.
For your business emergency fund, it’s important to consider how much you should save to keep you afloat. Consider your monthly expenses, such as payroll, utilities, rent, etc., and determine if there are any cuts you can make to overhead costs. Things like deluxe subscriptions for internet service could potentially be temporarily downgraded to basic service accounts to reduce cost. Once you’ve determined your monthly spending, it’s time to start your saving journey. The general rule of thumb for emergency funds is to save enough to get you through one month of business. Creating a savings account that you directly deposit money into as your emergency fund will help you keep track of how much you’re saving. Once you reach your goal, continue saving – as you never truly know how much money you may need in an emergency. Preparing as much as possible means expecting the unexpected and going above and beyond to ensure your company’s safety and security.
Fostering healthy habits with your money, how you spend it, how you save it, and how you earn it, will help you navigate the world of owning and running your own business. Start the year off with some personal finance goals that’ll help you reach the small business milestones you want to achieve.
