Money isn’t everything, but it sure does make the world go round. When it comes to small business owners, in particular, it’s easy to blur the line between personal and business finances — or, even worse, ignore the former in the name of the latter.
While it’s important to have a tenacious “all-or-nothing” attitude with your business, you must also care for your personal finances if you want to remain financially healthy over time. Here are a few ways that keeping up on your personal finances can not just benefit you as an individual, but ultimately help your business as well.
Control the Controllable
If there’s one thing that’s certain about life, it’s that it’s filled with uncertainties — as the ongoing COVID-19 pandemic bears testament to.
As Dave Barnett, Chief Human Resources and University Relations Officer for DeVry University, puts it, “There’s things we control, things we influence, and things that are entirely outside of our control,” later adding that we should, “make purposeful plans around how we’re going to focus on each of those things that we can control to contribute to moving ourselves and those others around us forward.”
In other words, when the unexpected occurs, trying to control the uncontrollable is a fool’s errand. However, a wise business owner will look for ways to control the controllable — especially when it comes to their own personal finances.
One of the best things you can do is diversify your financial dependence. Rather than living solely off of your business in a paycheck to paycheck manner, look for ways to spread your financial eggs into different baskets. Invest in other companies, create a cash reserve or emergency fund, and generally look for ways to create financial breathing room if your business struggles for a bit or you need to pivot into a different entrepreneurial project.
Keep Things Separate
Along with diversifying your dependence on your business, it’s also important that you keep your personal spending completely separate from your business expenses. This separation can:
- Give your business more legitimacy.
- Reduce personal liability at times.
- Help you remain organized.
- Make it easier to pay taxes and manage bills, invoices, and payments.
As a business owner, it’s best to keep personal and professional finances separate — the same way you would with a friend.
Establish and Maintain Credit(s)
Credit is an essential proof of healthy finances in the modern world — in both personal life and business.
Your business credit can be built through activities like opening separate business accounts and establishing credit lines with vendors and suppliers.
If you want to keep your entire financial life healthy, though, you must also consider your personal credit. If your personal credit is suffering, there are many ways that you can attempt to increase your credit score, such as:
- Setting up autopay and generally making payments on time.
- Avoiding additional debt like the plague.
- Paying down existing debt as fast as possible.
- Disputing errors on your credit report (if there are any.)
- Reducing your credit utilization ratio.
If you can keep your personal and business credit in good order, both can thrive side by side, and neither will cause you grief in the future.
Finally, here are a few more common questions you can ask yourself, all of which are critical to personal financial success:
- Are your expenses below your income?
- Can you cut down on costs if required?
- Have you automated and cut out unnecessary costs in your lifestyle?
- Have you purchased all the necessary insurances to protect yourself?
- Are you staying on top of your tax payments?
Many of these don’t just help your personal life, they also directly influence how you think as you run your business. As you begin to ask these kinds of questions, you’ll naturally begin to shift your financial focus as a business owner as well.
For instance, if you comb over your personal budget and make sure that your expenses are below your income, it can help you maintain the same mentality towards your business as well. The same goes for cutting down on costs, purchasing insurance, and paying taxes. If you tend to them in your personal life, they’ll become less intimidating, and you’ll be more willing to address them regularly in your business as well.
Using Personal Finances to Help Your Business Thrive
There are many ways honing in on your personal finances can have positive repercussions on your business activities as well.
Separating personal and business expenses can give your business a greater identity and make it easier to stay organized. Diversifying can help you avoid unnecessary dependence on your startup to survive every month. Tending to your personal and business credit scores with equal care can help both thrive.
Regardless of the specific scenario, the most important takeaway to remember is that, as an entrepreneur, healthy personal finances can be a key element to sustained business success.