People are always talking about effectively managing cash flow in case you are running a startup. Very rarely they discuss managing personal finance efficiently. However, startup owners must necessarily keep their personal finances well-organized. Your finances must mandatorily be in perfect order as running a business on your own could prove to be tricky and you may encounter an emergency when you least expected it.
For maintaining steady cash flow and for maintaining your business finances well, it is crucial for managing your personal finance competently. If you wish to be a reputed and successful entrepreneur, you would need a tremendous amount of expertise in several areas.
One of the most critical areas that might make you successful one day is by keeping your finances well-organized. Remember that there could be no business if there is no money. As a startup owner, you simply cannot lose track of specifically your personal finances.
Here are some of the best personal finance tips provided by the experts for managing your business finance along with keeping a tab on personal finances.
Keep Business & Personal Finances Separate
It is mandatory to keep your business and personal finances totally separate. You must not mix up the two under any circumstances. One must pay a salary to yourself and abstain from paying off all your personal bills from the company account. You must seek assistance from cutting-edge software and tools for keeping track of your net worth and all your personal funds.
Manage Efficiently Personal Cash Flow Same Way as Business Cash Flow
The key to maintaining a steady cash flow both for running your personal life and your business operations is efficient management of funds and competent handling of finances. You must treat your personal finance with equal importance as your business finances.
One needs to consider creating a financial forecast. You must comprehend your expenses, all sorts of potential cash inflows, your cash burn, and also, potential unanticipated expenditures. Someone needs to, first of all, figure out exactly how you would be organizing funds for the personal account and effective ways of maximizing personal revenue stream. Once you are all set with your personal finance, focus your attention on your business finance and do the same.
Focus on Diversification
You may not wish to think like a pessimist but it is best to be realistic and have the guts to admit that your startup may not be a runaway hit and may not succeed. So it is best to think safe and plan in advance to overcome any unanticipated outcomes.
It is always best to diversify and place some of your funds into some other alternative investment, side business, or simply keeping aside some money. This could help you in an emergency situation when you need to shut down the business or switch over to another business. If you could plan effectively, you experience constant growth in your business and encounter exciting opportunity to boost your business and attain your goals.
Always Plan for Crisis Situations
Businesses could prove to be quite erratic at times. You may need to handle financial emergencies and irregular income so it is best to chalk out a budget for your personal expenses and stick firmly to that budget so that you could have enough savings to help you run your life smoothly during the leaner business period.
You must arrange to cover the essentials such as food, housing, insurance, utilities, etc. Consider adding up all these crucial expenditures and keep aside just about enough for covering a minimum of two months. In case you are compelled to take out loans, it is best to get in touch with for perfect debt management and debt relief solutions.
Secure Your Future
You must essentially save for your retirement. Someone may be having a highly erratic income flow during the initial few months or even the first few years after initiating a startup but even then your intention must be to keep aside a small amount as savings every month.
You must consider opening up a Roth IRA and also consider contributing the maximum amount possible every month. If you are looking to save more, you may open a Solo-401 K account or SEP IRA account that may help you evade a substantial amount in terms of taxes from your business income.
Balance Your Expenses against Income
A parallel drawn to Parkinson’s Law dictates that as your income increases, so do your expenses. This would explain why you might feel back to a tight financial situation a month or two after getting a raise. You will need to make an intentional, targeted effort to stay on top of your finances and ensure you are not only living within your means but also keeping enough room for savings.
As the owner of a small business, you are likely to be operating on a stringent budget. You should ensure that something similar is in place for your personal finances. It is almost too easy to lose track of your own accounts while trying to scale your business.
This is why you can use an app or website that keeps tabs on your incomes and expenses and gives you notifications when you’re taking rash decisions and need to be reeled in. The next step would be to try to reduce your expenditure, and then settle debts or put the surplus funds into savings.
Safeguard the Most Precious Asset
You must understand the necessity of disability insurance because your ability or capacity to earn is supposed to be your most precious asset. Stop taking for granted that it would never happen to me. Start believing that it may happen to any and everyone including me.
When you are looking for appropriate answers to questions such as how exactly your family would be leading a normal life without your income or how would you generate some income if something bad happens to you, there would be an instant realization that disability insurance is a must.
Your personal finances could be well-protected provided you consider becoming a C Corp. You could be in tremendous trouble if you are having the LLC. With a C Corp, there is no connection between your personal and business finances.
The business would certainly be a separate entity with a C Corp implying that the business would be managing its finances and you would be managing your own business. Seek expert professional for managing your finances well and offering you a completely unbiased view of your finances.