Money management is one of the skills that any small business owners should know. Unlike a large business, finance in small business is linked with personal finances. Therefore, if you are inclined on building a successful enterprise, your personal financial matters should be in order.
Important Personal Finance Tips for any Business Owners
1. Maintain separate personal and business accounts – It is always advisable to keep your personal and business finances separate, or else it could lead to a lot of confusion when filing your income tax returns. For instance, never use your personal credit card for business purposes. Instead, it is always better to use your small business credit card. Using your business credit card will help build your business credit. This will be useful when you apply for business loans or if you are planning to invite investors. However, ensure that you do not get into too much business credit card debt; this will harm your credit scores.
2. Think twice before every purchase you make – Whether you are making a purchase for your business or personal needs, ensure it is of utmost importance. Until you are a well established business owner, your spending habits should be thrifty and frugal. What you can do is make a list of items that you want to purchase after 30 days. If you still want to purchase the item after 30 days have passed, then it must be a really necessary item. This is one way to curb personal spending.
3. Open an account in your local bank for emergency fund – It is always important to set aside some amount for emergencies. Start putting away some money every month into this account. Do not touch this money unless you need it desperately. The emergency fund will help you tide over rough times in your business or during any health issues. In brief, emergency fund is to be utilized only when things don’t go as planned.
4. Plan for your retirement – When you are an employee, you have access to a company sponsored 401(k) plan, where you and the company put away some amount of money for your retirement. Similarly, it is important to plan for your retirement when you are a small business owner. You should consider opening an Individual Retirement Account (IRA) through a reputed bank. Another plan where you can save for your retirement is through the Simplified Employee Pension plan known as SEP. Small business owners can invest up to 25% of their yearly income. This is also an ideal way to reduce your tax liability.
5. Hire a qualified tax professional – A good accountant is a wise advisor to any business owner. He can advise you on how to minimize your tax liability. It is better to be proactive and have a good tax plan planned out for the entire year. This will help to reduce your IRS (Internal Revenue Service) liability or else you will end up paying an unnecessary amount to the government.
6. Stay out of debt and build good credit – If you have any loans or credit card debt, it is better to pay it off as soon as possible. This can be done through monitored spending or by taking up any part time job. The extra money earned can be used to pay off your debt at the earliest. When you clear your debts, your credit score will go up. A good credit score can help better your chance of getting a good loan.
As a small business owner, you need to set goals and take control of them. You should have a monthly and yearly business plan. This will give you a clear vision regarding your goals and targets for the year ahead. The milestones are necessary to mark your achievements. Keep a positive attitude and be passionate about what you do.
