Today’s guest post is from Anthony Hanson. Anthony is the founder of iFinance Department, an online accountancy aimed at helping small and medium businesses grow through the combined power of cloud technology and true financial expertise.
When setting up your small Business, it can become easy to get lost in the day to day financial management of your business, and completely overlook your own personal finances. What many business owners don’t realise is that often, wise or good decisions made in their personal finances can have a positive impact on their own business finances, just like bad decisions can negatively affect the running of your business.
Here, we’ve compiled some of the best financial tips for small business owners that address how to handle money pertaining to your personal finances that will help you in business.
1. Establish an emergency fund.
According to financial planners and financial experts, the best rule of thumb to work by is to have three to six months worth of living expenses (after taxes) stored in a rainy day, or emergency savings fund. However, if you own a business, you may want to have an even larger emergency fund in case your business takes a downturn or you experience seasonal fluctuations in cash flow. Your emergency fund money should remain untouched unless in the very direst of circumstances, such as a financial emergency like a car accident, sudden major home repairs or renovations, a natural disaster and subsequent repairs, or any sudden, unforeseen medical bills. Having this money stored will not only give you better peace of mind in your own personal dealings, but you know that in the very worst case you will be able to support yourself or your family whilst still focusing on running your company, without the worry of what was to happen in the event that you lost your largest paying client and had to take pay ramifications.
2. Save for retirement.
Many business owners put off retirement funds, and instead become too busy focusing on the present to think or plan for the future. However like anything, the longer you wait, the harder it becomes to be truly prepared for when the time comes. Small business owners are known for investing a large majority of their profits back into their business, but that does not mean there is not a wealth of options available to small business owners to allow them to save for retirement. Depending on qualifying factors such as annual income, some small business owners find they are able to save more money for retirement as someone self-employed, than they could as an employee. Additionally, a pension can become a tax efficient way of withdrawing money from a business, which can then be used to build an income in retirement. Pensions are also ring fenced from the businesses creditors in the event of the worst case scenario.
3. Keep Track of Your Personal Credit
You may think that bad credit is just applicable to your personal finances, but often that is not the case. At the start of any business journey, potential business owners struggle to get their business established which leads to rash financial decisions that can have later implications along the road. Watch your credit score and make sure that you pay bills on time whilst watching for any credit arrears that may need resolving immediately. If money is tight, even the smallest repayment on a credit card on its due date can make a big difference. Having better personal credit does contribute to your business, especially if your business is establishing credit under your, or your business’s name.
4. Don’t Get Carried Away
To celebrate their success, many first time small businesses owners, or initial entrepreneurs revel in the freedom of working for themselves and earning a proportionate wage that is not dependent on an employer. Whilst this newfound experience is gratifying, the temptation to live the ‘high life’ can offer incur negative consequences on your business finances. In the event of a sudden financial downturn, the money that has been spent helping to live extravagantly could have helped float your business through to the other side of the event. Additionally, if there is no secondary source of income to help supply your emergency fund, or you as the owner are suddenly unable to work, that money could also have helped either contribute to an emergency fund, or paid a wage for someone else to keep things ticking over in your absence. Always make sure that you are living well, but that your business is protected at the same time.
5. Work with a Professional Adviser.
At the very start of your small business journey, it can be a confusing and overwhelming place. Not only in the initial steps required to establish a business such as advertising, marketing, collecting a client base and then finally undertaking the work, but also in the financial setup. It can be easy to be misled or confused by conflicting advice. Having someone to talk to so that you can make informed decisions about your personal and business finances can be a huge asset, and a large worry off of your shoulders. Finding the right Financial Adviser, as well as the right accountant will help you arrange your business and personal finances to keep them running as smoothly and tax efficiently as possible. Whilst expert advice does always come at a cost, just like you are good at what you do they will have the experience to know what they are doing which will pay dividends in the long run. Try and see professional advice as an investment, and not a cost.Making sure your two key advisers communicate with each other, and are aligned with understanding to help you work towards your goals will let you focus on running your company with a refreshed mindset of calmness and optimism.
Everyone, not only small business owners, can improve their personal finances. Whether it’s through establishing a solid emergency fund, curating trusted personal credit, or taking the time to plan and save for their retirement, these options allow business owners especially the ability to focus on building their company to its optimum standard, whilst being assured they are making the correct financial and personal decisions, keeping the equation balancing right.