Entrepreneurs, small business owners, and founders of startups often have to walk the thin line between personal finances and business finances in the early days of their business. You’ll most likely be starting your business venture with your personal funds and it is very easy to forget where you personal finance ends and your business finance starts. As you grow in business and keep proper financial records, you’ll find it much easier to separate your personal finances from your business finances.
However, the personality and lifestyle of the business owner often exerts some direct and indirect influence on how the business is being managed. Hence, your personal habits such as diligence, frugality, punctuality, and responsiveness will start showing up in your business culture. This piece examines three personal habits that could creep up to have a direct influence on your business finances.
- Winging your finances and hoping for the best
If you are someone who has a lax attitude to life by just going with the flow, you’ll most likely be leaving some parts of your personal finances to chance. For instance, hope will become a strategy – you’ll hope that you have enough money to cover the next bill, hope that your friend wait two weeks to cash the check you sent, hope that the dentist doesn’t find a cavity that will cost you money to fill.
By implication, you might start winging your business finances instead of taking the time to actually do some number crunching with financial planning. However, the odds that your business will survive and thrive profitably will be drastically reduced if you don’t have a solid financial plan. You may want to start out by business plan and including some realistic financial projections in the business plan.
- Mistaking credit cards for an emergency fund
Many people save money towards specific goals such as a down payment, investments, or retirement. However, very people understand the importance of having money set aside in an emergency savings account for unexpected expenses. When most people face unexpected expenses such as failed transmission in their car, they tend to dip cash out on their investments, dip hands into savings meant for other purposes of get into debt.
In business, if you don’t have money set aside for unexpected expenses, you’ll tend to borrow money and reduce the credit worthiness of your business. However, business credit even when readily available should not be your first port of call in time of financial emergencies.
If you’ve started keeping proper financial records (see 1), you’ll find it much easier to separate your costs from your revenue in order to know how much profit your business is making. If you already have too much debt, you may want to take the time to understand how debt consolidation works, so that you get back to being in control of your finances.
- Having too many small miscellaneous expenses
When creating your personal/business budget, it is ideal that you set some money apart for miscellaneous expenses. Many people struggle with their personal finances because they have too many miscellaneous expenses that make it hard for them to track where their money goes per time. If you are not disciplined in your personal spending, you are not likely to be disciplined in your business spending.
Many people fail in business not because they lacked good products, management skills, or a market presence but because they failed to pay attention to the little details. Seemingly small expenses, such as subscriptions, membership fees, club dues, and petty cash, when not proactively managed can eat into your margins and make a mockery of your efforts.