Today’s guest post comes from Michael Norton, who is a content creator for Funds INC. If you’re looking for information on how to start a business or how to bring your own startup ideas to life, this post has lots of practical financial advice.
Here’s more about Michael:
Michael Norton is a marketing strategist and content creator for Funds INC, a company that specializes in commercial finance.
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5 Personal Finance Tips For Startup Owners
There is indeed no doubt about the fact that being a successful entrepreneur and launching your own business comes with its fair share of challenges and hardships. It requires your expertise in a number of different areas, each unique in nature and function.
Perhaps, one of the biggest challenges for such startup owners has to be ensuring the financial viability of your business as you strive towards making it profitable and lucrative.
Undeniably, financing is the lifeline of any business, whether big or small. You need to have your business’s finances in order. And, most importantly, you also need to manage your personal finances, too.
Naturally, your business and personal finances will not always align with one another and you are likely to get stuck in trying to manage both at the same time. However, as a small startup owner, you cannot afford to lose sight of your personal finances. If they are in poor shape, your new business isn’t likely to fare any better.
You must also understand that it takes a good couple years for any business startup to see any return on investment. Many businesses also fail to make it past the initial struggling phase because of poor financial choices and decisions that take a toll on the success of their new business.
As a startup owner and an aspiring entrepreneur, you should take into account these personal finance tips. They won’t only help you manage all your finances but will also help your business thrive and flourish.
1. Separate Your Business and Personal Accounts
Having a startup of your own can often make you lose track of your business finances and your own personal finances. This usually happens because you are so interconnected and invested in your business that you end up losing that distinction.
While that enthusiasm may come in handy sometimes, it definitely shouldn’t apply to your financials. It is imperative for you to keep your business and personal accounts separate at all times. It will help give your business more credibility and a sense of legality. And, in many cases, it will also diminish your personal accountability given that something bad happens in the near future.
Furthermore, keeping your business and personal finances separate will prevent you from all the hassle during tax season when you are calculating your business expenses. It will also ensure that you don’t end up unloading the burden of your business‘s finances onto your personal accounts.
2. Plan an Emergency Fund for Rainy Days
Every business owner is always advised to have an emergency fund ready for rainy days. And especially when your business is just in its initial stages of growth, you need to have money saved for unpredictable times and situations.
This goes without saying, every business struggles initially and there do come phases when businesses stop booming and flourishing. These dry spells of no-growth often result in irregular income earnings and you, as a startup owner should be prepared to deal with such volatility.
As a small business owner, it’s really important for you to budget and plan for those months. Also, given the fact that you will need to cover the expenses of insurance, housing, food, and utilities, you must keep these personal financial needs in mind and have enough saved for emergencies.
3. Diversify Your Investments
As a business owner, you’ve probably heard this multiple times that always diversify your investments. Diversification is probably one of the most important and basic tenets of investing.
It is particularly important for a startup owner because they tend to reinvest their entire personal capacity in their business which is super risky. Because if something bad happens to your business, it would endanger the financial security of your personal assets.
By allocating your funds in different areas like alternative investments, side businesses or simply just keeping aside some amount of cash in a savings account, you are allowing your finances to breathe. In addition, not all of your personal assets and finances will end up being funneled into a single business or investment.
4. Be Optimistic but Prepare For the Worst
Needless to say, there will always be a significant degree of risk associated with a new startup business. So, the best thing you can do is prepare yourself for the worst possible situation.
Despite how volatile things are, don’t quit your job and give up your main source of income until your business can actually fully replace that source of income. Or at least, it allows you to comfortably survive and shows the potential of steady growth.
It is also important to keep both personal and money reserves in emergency savings accounts. This is because adversity often strikes when you least expect it.
Also, as a startup owner, you are fully responsible for your retirement. So, when your business starts making money, consider setting up a retirement fund. You don’t have to allot a ton of money for that fund. Start with small savings as you move forward because it is these very savings that will help you with your future financial situations.
5. Learn To Be Frugal
Being frugal simply requires you to understand the fact that the more money you save now, the more money you will have in the future.
Having a big budget might seem really enticing and tempting, however, that doesn’t cut it. If you see an opportunity to reduce the overall cost, seize it without a single second thought. As a startup owner, you should always be asking yourself, “Can I possibly get this any cheaper?”
Asking yourself this question will always help you figure ways out to reduce the costs of your overall purchases.
Frugality is also important because as a startup owner, you are likely to want to spend right away as soon as you receive your first income earning. However, it is essential to wait and give your business some time till your cash flow becomes more consistent and steady.
As stated earlier, the success of your startup business hugely depends on striking a balance with your finances. Being smart with your money, both business and personal finances from the very start will significantly pay off in the long run.