As an entrepreneur and small business owner, you are likely used to focusing on big picture projects: new products or services, transforming industries and building your business to succeed. However, you cannot neglect the more tactical things, either. Managing finances are an essential part of running a business and ensuring you have a regular income. By adapting to some best practices and forcing yourself to keep to a routine, you can improve your personal finances and free up more time to focus on the creative side of your business:
1) Don't procrastinate
One of the most common mistakes entrepreneurs make is putting off managing their finances altogether. However, putting it off increases the risk of getting overwhelmed and making mistakes, like missing an invoice or forgetting to track a big expense. If you have trouble staying on top of it, using a program like QuickBooks can simplify the process and make invoicing and expensing an easier chore.
2) Track your hours
When you’re getting your business off the ground, it can be all too easy to fall into the trap of working 80 hours or more a week, at the expense of your sleep, eating habits and time with your loved ones. During the early stages, it’s understandable that you need to put in a lot of hours. However, if it’s something you need to do regularly, that is not sustainable, and it signals a problem within the business. Either something needs to change with your business model or you need to hire additional staff; running yourself that thin will only lead to bigger problems down the road.
3) Increase access to capital
Even though the recession happened several years ago, the repercussions are still significant, particularly for small business owners. Ensure you have access to additional funding now so that you can take advantage of opportunities later on. Establishing a line of credit or opening a business credit card can ensure you have the money you need when situations arise. That will make managing your personal and business finances easier since you can stop using your personal credit cards for company expenses—your accountant will thank you.
4) Separate your expenses
Along with that, make sure your personal and business expenses stay completely separate, not using your personal accounts to pay for business utilities and vice versa. Blending your finances will make your taxes impossible and can end up costing you significantly due to lost deductions. Keep a clear line between accounts to make your life simpler later on.
5) Minimize your debt
When your startup is launching, your profit margins can be razor thin if you make a profit at all. You can maximize the chances of your business succeeding by lowering your monthly expenses, both professionally and personally. If you have debt, such as student loans or credit cards, try to bring down your debt burden to free up more capital. You can transfer your credit card balance to a zero interest card to help more of your money go towards the principal, or take out a low-interest personal loan to pay off the debt. If you have student loans, refinancing them can give you a lower interest rate or a smaller monthly payment with an extended repayment term, giving you more money to work with each month.
6) Budget to meet your goals
When building a budget, many entrepreneurs focus solely on the business profits and cut expenses drastically to make the company profitable. But in doing so, they forget one key aspect: you’re supposed to be making money off of this. When you’re creating your budget, make sure you account for a salary that reflects your time and talent. While it may not be the same as what you would get in the corporate world working for someone else—at least for right now—your salary should still be enough to cover your expenses, and then some, and you should plan for regular increases.
Managing money may be one of the most dreaded tasks you handle, but it’s an essential part of being a small business owner. While you have more earning potential as an entrepreneur, you also have more financial burdens and hurdles you need to cross. Instead of focusing all your time and energy on making your business produce money, make sure that you also are taking care of yourself and your income.
By following these tips, you can both keep your personal finances in order and ensure your business is profitable.