Owning a business requires owners to be smart about their personal finances. One of the skills you need to learn is money management.
Unlike large businesses, small businesses or start-ups primarily use finances that are linked with personal finances. You, as an entrepreneur, need to know techniques in utilizing your personal money to keep track of all your financial decisions and activities. This will include budgeting, debt servicing, insurance, investing, mortgages, savings, and more.
Managing your personal finances requires financial planning. It involves regular monitoring and re-evaluation. This also includes predicting short-term and long-term needs and analyzing the current financial position of your business.
Ways to Improve Managing Your Personal Finances
Managing your personal finances is no joke. It needs patience, focus, and dedication. To greatly improve your skill in managing your personal finances, here are some of the things you need to know:
Make a Budget Plan
You should know how to budget your money. This will be your rule of thumb in managing your personal finances which will be used to track what you are spending.
- Know how much money you need by making a budget plan.
- This will help you draw out the amount of how much you have to spend to run your business on a daily basis.
- Identify your needs and wants for your business by enumerating the expenses, prospective income, and paycheck allowance of your employees.
Personal vs. Business Accounts
You should know how to separate money considered for personal and business use. Personal finance may serve to support you, financially it is not an ideal practice to use your business funds for your personal expenses. In this case, you need a credit card with a credit limit meant just for business purposes only. There are credit cards that provide you with detailed expense report and flexible payment terms to help you plan your cash in-flow so as to meet your business’ cash-outflow.
Are you ready to face any financial crises that might come your way? Set aside an amount of your money for emergency funds. This can be used when you fall on hard times and need financial aid to get you through it. Open a bank account for your emergency fund and allot a portion of your money for it. You may deposit a minimum amount on a monthly basis. Do not use the money from this account unless you really need it because emergency funds should only be used when things don’t go as planned.
Once you track your expenses, you should also teach yourself to allot a portion of your financial funds to pay off your debts. Your steady revenue will be compromised if you don’t take care of your debts first.
However, you don’t own a business just to pay debts. If you have been holding true to your budget plan, you can track your expenses and analyse your spending habits as well as check if the money you spent all add up. You have to build a good credit standing. Paying your debts will keep your credit score up and you’ll have a better chance to get a loan in the future.
Use Accounting Tools to Help You Budget
There are different kinds of software you can use to track your cash flow. Excel is one great example of this type of software. If you have a tablet or smart phone, you can download accounting tools in the app store. This won’t just save you more money but will also help you organize data about your business. You can review your cash flow easily by being organized so using a spreadsheet for this will do.
Determination is the key for a successful business. You need to be resolute—be firm, be determined, to manage your finances the best way possible. As a small business owner, this practice will only prove more valuable to you in the future as your business expands and grows.
This article was prepared by Money Hero for Trep'd. Money Hero is Hong Kong’s leading financial comparison website. Compare a broad range of financial products - from credit cards to insurance plans.