99: How Personal Finances Impact Business Whether You Are Starting A Business, Self-Employed

99: How Personal Finances Impact Business Whether You Are Starting A Business, Self-Employed, A Solopreneur, Entrepreneur, Mompreneur, Business Owner, Side Hustler, Freelancer, Bookkeeper, Virtual Assistant, Or VA

Understanding and having control of your personal finances is extremely important when you have a business. There may be instances in your business when you need to inject personal funds into the business if you are having issues with your business meeting its cash flow and financial needs. You need to know if you can indeed afford to put these funds into the business without negatively impacting your personal finances. On the flip side, you also need to know how much money you need the business to pay you so that you can continue to meet all your personal financial obligations. When you have a clear understanding of your personal finances as well as how your personal finances may impact your business, you can be proactive with your finances so that you can benefit your business in the best ways possible. In today’s podcast episode, I discuss how your personal finances can impact your business. As a business owner, there are many times that your personal finances, credit score, and even personal guarantees are taken into consideration. Knowing your finances and being prepared for the future could help you ensure your business is set up for success rather than the high failure rates we see in many business startups. Whether you are a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA, make sure you are aware of how your personal finances could impact your business. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…

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Show Notes:

Welcome Back…Having your personal finances under control when you have your own business is extremely important. Not only should you have a system for managing your personal finances, but you should also understand how your personal finances can impact your business finances as well.

Let’s start with how you can make sure you are managing your personal finances effectively. You should be consistently tracking all your money coming in and going out of your personal finances. This will give you a good idea about how much money you are making as well as how much money you are spending. You’ll see any fluctuation you have in your income and expenses, and you should try to track this on a monthly basis. Once you have a good idea of where your money is going, you can decide if you are happy with these amounts. Often when you really start looking into each of the amounts you are spending, you become more aware and may decide to adjust your spending in different areas. Take, for example, you start tracking how much money you are spending on eating out. When you see a total for this at the end of the month, you may be surprised and decide to limit your eating out a little more in the future. Having your monthly amounts will also help you to create a budget. Does the thought of creating a budget make you squirm a little bit? If so, I want you to know that this doesn’t have to be complicated. All you need to do is take the amounts you find when you are tracking your finances and then tweak these amounts if you feel they are necessary. If you think they are okay, then you have budget numbers you can work with already. Having a budget will help you follow through with your plans and really allow you to start working towards your financial goals. Make sure when you create your budget that it is realistic so that you can stick with it. You don’t want to create a budget that is so strict that you consistently go over budget and feel out of control. You also want to ensure that you have an emergency fund set up. I would recommend that you aim to have 3 to 6 months of expenses saved up; I know for many of you, this may seem like it is unobtainable when in fact, it is obtainable. You just need to start small and then keep building on it. Make a goal of starting with a smaller amount…maybe $250, and then going to $500 and so on. If possible, I would also recommend trying to budget in an amount that you will save on a weekly or monthly basis and have that amount automatically transferred to your emergency fund. By doing this, you are making saving money effortless. I also want you to make sure that you are paying your bills on time. Again, if it’s possible to set up automatic payments for your bills, it will save you time and help limit late payments. If you are good at paying your credit card in full, you could set up your bill payments to be paid by your credit card and then have your credit card set up to automatically be paid in full by the due date as well. This will not only help you pay your bills on time, but it will also help you incur cash back or rewards if your credit card allows for this. If you need to cut back on your expenses so that you are able to save more money or pay off debt, make sure you are monitoring your expenses and stop any that are unnecessary or you are not utilizing, and have a plan for paying off your debt. Find out what the interest rates are on each of your debts and decide if you will work at paying off your highest interest debts first so that you can save the most money, or if you’d rather pay off your debts that have the lowest overall total so that you can gain some momentum by paying one in full, and have fewer debts outstanding, and then moving on to the next lowest debt balance. If you anticipate any large purchases, include them in your budget and save for them whenever possible. And lastly, make sure you are investing and have a plan for your retirement. Whenever possible, take advantage of retirement plans that have a tax break. You could look into a 401K, Simple plan, IRA, or even a Roth. I also recommend that you take some time to review your personal finances often. Book a time in your calendar when you’ll go over everything finance related and make it a priority. Do not cancel these appointments. This would be a great time to review your credit score as well. Review your spending, budget, and savings goals and set new ones once you’ve achieved them. Make it fun and pamper yourself a little or make it special when you do this so that you will look forward to doing it again in the future. Having all of your personal financial information will allow you to create your own personal financial statement, which lists all of your personal assets and liabilities. This personal financial statement will help you to see exactly how you are sitting financially. When you have your personal finances in control, you will feel more at ease and will be able to make better decisions for both your personal finances as well as your business. Understanding your business finances will be much smoother as well.

Now that you have an idea about how to manage your personal finances, let’s take a look at how these personal finances can impact your business. If you are just starting your business, you may be looking at utilizing your personal finances to get your business started. You could be using your personal savings, personal income, or your personal assets when you do this. Have a business plan in place so that you know how long it will take for your business to generate consistent income. You may need to continue to inject personal funds into your business at first if your business isn’t making enough money to be sustainable. Know where these funds will come from. Do you have a personal savings account you can fall back on, or will you continue to work at a job until you can afford to rely solely on your business income? You’ll also need to have enough income to cover your personal bills and living expenses during this time as well. Make sure that you have separate business and personal accounts. This will help you to not only keep your personal and business finances separate but it will also make it much easier to know exactly where you are sitting in each area. When you commingle your business and personal finances, you are not only looking at some potential legal issues, but when you keep them separate, you can truly see how your business is doing financially with an accurate picture of your financial statements. It also makes doing the bookkeeping for you