Financial management is an essential part of every business. Making smart financial decisions can prepare you to weather the storm, stay afloat when facing bad times, and take your business to the next level when the circumstances are favorable.
On the other side, poor financial decisions are among the most common reasons businesses fail, as 82% of business owners cite cash-flow problems as the cause of their downfall.
As a business owner, you need to keep an eye on your personal accounts while also managing your business finances.
If you want your business to flourish and achieve long-term success, here are the top seven personal finance tips for you to follow.
1. Automate Bill Payments
Automation is a quick and straightforward way every business owner can significantly improve their finances. Automating your monthly bill payments helps you better manage your finances by protecting you from forgetfulness, procrastination, and making bad decisions. It also saves you a lot of time, money, and energy.
Financial automation has never been easier, as now you can automate virtually everything: from your bills to your investments. Instead of trying to remember when all of your payments are due, set up online bill payments.
You will never again have to worry about penalties for late payments, and at the same time, you won’t waste your time on these menial but still time-consuming tasks. Just make sure to keep an eye on your cash flow so that you have enough resources to pay the bills when they are due.
2. Build Your Credit Score
Maintaining a good credit score has many benefits, like saving money on insurance and enjoying lower interest rates on your loans or credit cards. It is also vital as creditors, suppliers, partners, and others will check your personal credit score when deciding whether to work with you.
Increasing your credit score and tracking it regularly can help enhance the financial success of your business. Applying and qualifying for a loan will be much easier if you have an exemplary credit score and you’ll receive better loan terms that can significantly benefit your business.
If you’ve successfully handled your financial accounts and personal debts, you’ll be more likely to obtain a loan if you need one.
3. Separate Your Business and Personal Finances
If you are just starting your business, your personal and business finances often get so interconnected that following this financial tip can seem complicated.
But even so, it is crucial to separate business and personal finances. Otherwise, the burden of your business expenses may fall into your own accounts.
To keep them separate, open a business bank account, and apply for a business credit card.
Keeping these things separate will make it easier to manage your finances, and avoid a potential headache during tax season. Also, having two different systems gives your business more credibility while eliminating personal liability if things go downhill with your business.
4. Make a Family Business Succession Plan
Family-owned businesses, the oldest form of business organization, represent important participants in the world economy. In the U.S., around 90% of all companies are family-owned or controlled.
An important issue and one of the biggest challenges relating to a family business is who will take over a company when the current generation retires. Smart succession planning in a family business is key to sustaining the company in the future and avoiding conflicts about taking over leadership and ownership of the business.
A healthy succession plan will also ensure every party’s financial interests are met. Preparing to turn the enterprise over to the next generation takes years as there are many things involved.
Working with a family business adviser will make the process as smooth as possible, keeping the lack of an effective succession plan from slowing down the growth of your business. If you plan correctly, you can qualify for retirement tax relief and save a lot of money.
5. Create an Emergency Fund
The future is unpredictable, and nobody can tell what can happen in the years to come when running a business. Having an emergency fund or a backup savings plan will help you keep your business afloat in the event of a downturn, or when your earnings become irregular.
Take the current global health crisis – businesses with sufficient savings will go through these challenging times better than those with no emergency funds. This is why the habit of saving money right from the start is vital.
Make sure to minimize frivolous spending and only make purchases essential for the functioning of your business.
When drawing up a budget, try to include plans and objectives for emergency funds that can cover a couple of slow months or potential losses.
6. Save for Retirement
Setting up a retirement fund is one of the most fundamental finance tips. By contributing early into a SEP (Simplified Employee Pension) IRA or a Solo 401k account, you’ll build a safety net for yourself and your family. To prepare well for retirement, do thorough research on the available retirement plans before choosing one.
Setting up automatic contributions makes saving for later in life more manageable.
If you still need guidance, consider consulting a financial adviser. A Certified Financial Planner can help you navigate the entire process.
7. Consider Going Paperless
Keeping your business paper-free is useful for streamlining your business processes, and it’s good for the environment.
With online accounting and invoicing tools, you can easily switch from heaps of papers to organizing accurate digital records.
This will make filing taxes much more relaxed, and don’t worry – you can easily back up all your essential business data.
Adopting electronic payroll can save you money, since almost half of small businesses pay an average of $850 a year to fix various payroll issues.
Reliable payroll software automates tracking employees’ hours worked, calculating salaries, and even filing taxes, at the same time eliminating human error and reducing paper use.
Being smart with your personal and business finances takes a little time and effort, but it has the potential to improve the success rate of your business in the long run, so stick to the tips listed above!
About the Author
I’m Rebecca, a translator and avid traveler, a book worm and horror flick enthusiast. My job has given me the amazing opportunity to travel to dozens of countries around the world, and writing on Rough Draft gives me a chance to try to showcase some of them.