How to Separate Your Business and Personal Finances
As the old saying goes, small businesses are the backbone of our economy. In fact, according to the SBA, 60-80% of new jobs are attributed to small businesses, providing ecosystems to help grow and prosper cities. Yet, as a new entrepreneur, it can be hard to invest in both your personal and professional lives, especially when you’re the one writing the paychecks. Moreover, while this might take some getting used to, being responsible on both ends will not only put yourself at ease, but your employees as well. Check out some crucial steps to establishing your foundation below:
Start with What’s Important for Each
In analyzing the differences between your business and personal finances, it’s important to take a look at what’s imperative for each, as well as how the two tie together. For example, if it’s your first time starting a business, then your personal credit score is going to be heavily weighed upon your financial responsibility. If your score is developing or has hit some rough spots, as creditrepair.com notes, it might not be a bad idea to look into credit improvement. Additionally, it’s not just lenders that look at your credit score, but potential investors as well. After all, if you’re taking their money to help your company grow, they’re going to want to have an accurate depiction of how you handle their funds, regardless if you’ve started a company before.
As you start to develop a picture of where your credit score stands in your personal life and how it will affect your business, it’s time to start positioning yourself to provide you and your employees the most opportunity. This includes a slew of different factors, such as where your team is going to work, what perks/benefits you’re after, the equipment needed, or even if you’ll have interns. Furthermore, it’s imperative you keep a close eye on your burn rate or the amount of money you’re spending versus how much revenue you’re bringing in. This will be one of the most important aspects of both your personal and professional plans.
Create a Structured Plan for Your Goals
Beyond entrepreneurial dreams, we all have personal goals that we’re trying to achieve. These can range from taking an amazing trip to making a major purchase, but regardless of the case, it’s important that you’ve factored in on how both your personal and professional goals are going to affect one another. For example, let’s say that you’re planning on getting married within the next year and are going to take a two to three-week honeymoon. This is going to require you to answer a few questions on how you’ll ensure the success of your business while you’re away, such as: How will the company run without you? Who will be in charge? Is that person authorized to make purchases/financial decisions? If so, to what extent? What happens in the event of an emergency/incident?
This is why having a plan in place is imperative to your success. Not only will you be better prepared in the event of something happening, but you’ll additionally be able to forecast out where you’re currently at, as well as what could be coming to your business in the future. This can play a big role in your personal life because if your business is growing, that could possibly mean more money in your wallet later down the road. However, don’t get too comfortable, as it’s always a smart idea to prepare for a rainy day.
Be Prepared for a Rainy Day
Going through a rough patch is almost inevitable for any person or business, but how you respond to it is going to be what defines you. For example, let’s say your marketing efforts haven’t gotten the best return on your SEO, and now you feel as though you might not be able to pay all your employees on time. There are a few options you can go through, including delaying payment, paying out of your personal income, or even borrowing funds. Delaying payments could make your employees disgruntled or be mindful that loaning money could hurt more than it could help given that this is money being applied to something that already didn’t accrue revenue. The best option would be paying out of pocket because as the leader of your organization, it says you put your employee’s happiness before your own. Furthermore, this is a practice a lot of great leaders follow, and something you should potentially budget.
Separating your personal income from your business doesn’t have to be hard, but sometimes the two are joined at the hip, especially when it comes to start-ups. Overall, be invested in both, because you never know where your return is going to come from. Plus, if this is your business, that means you love what it’s about, and are willing to ride through the highs and lows. After all, isn’t that what entrepreneurship is all about?
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