Running a business can make it hard to organise 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. It’s essential for business owners to have an iron grip on their income to carefully plan their outgoing costs.
You can deduct some of your business expenses on your taxes and this will lower your taxable income. Doing this will also incentivise you to reinvest your profits back into your business to fuel further growth.
Live Below Your Means
Saving requires a surplus of cash available in your budget.; that makes it almost impossible 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 CBD to save either for your family or to reinvest into the future growth of your company.
If you’re a property owner, you can take advantage of the current low rental rates and sell your property to free up your mortgage repayments and give yourself cash to be able to take on extra risk in your business.
Even when your businesses are in a good run, try not to be tempted to move to a bigger home or buy a brand new car straight away and locking yourself in a long term mortgage. Rewarding yourself is important but only buy an expensive reward 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.
Discussing your financial situation with your partner will also mean that you can share the potential stress and financial burden when expanding the company. From a simple chat at the end of the day to an update at the dinner table, it’s important to fill your partner in with what’s happening in your business.
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!
Budgeting doesn’t mean you need to be tight with your money but it does mean you need to plan your expenses. If you want to go on holidays or if you have a large purchase you want to make, your budget can help you carve out additional funds to help you comfortably pay for.
Schedule Regular Money Meetings
It’s important to schedule in 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. If you don’t want to further invest more of your personal funds, consider looking for outside investment channels.