Entrepreneurs need to look at money differently. Personal finance principles remain the same but the mindset around it and the planning process can be different. Here are five things you can implement as a business person to become successful.
1. Separate your personal money from the business money.
I have written about this before but today I want to emphasis on mental separation. We seem to have a mind block on paying ourselves even when we can actually afford it. If you have a problem seeing how your personal money could ever be different from the business money, think about it this way. If your business shut down today, would you still exist? Of course. Therefore, money for your own sustenance would still need to be available. You need to start putting this money aside now. This does not happen only when your business is making loads of money. A lot of entrepreneurs have found themselves with nothing even after running a business for years. There’s a myth that being completely self-sacrificing and ploughing back everything is good business practice. Don’t let that happen to you. Business money belongs to the business. Your money is yours. Pay yourself.
2. Set personal financial goals that are separate from the business.
We usually set business goals for the month, year or even five years ahead. Goals make us focused and more intentional. The business financial goals are not your financial goals. Problems arise when you mix them. Set separate personal goals and then work backwards. In other words, think through what will need to happen for you to achieve your objective. Say buying a house is one of your goals. Remember, the business does not exist for your house. Many people have used money from the business to fund this house only for the business to suffer or completely collapse. Instead you have to think this way. What does the business need to make so that it can pay you enough to afford the house? What revenues does the business need to make so that it can pay you but also manage its other obligations? This way, you are not destroying your business in the process of buying a house. To accomplish your goals, you will need personal savings and investments that have nothing to do with the business.
3. Manage your personal spending.
If you are running a business, it is very easy to get caught up in a lifestyle that you cannot afford. When you are employed, you do not have access to the company’s money. But when you own a business, you do. No one will stop you from withdrawing money because it is available. Because of this accessibility, it is even more critical for entrepreneurs to work with a personal budget. Imagine running out of food at home and your business account has hundreds of thousands. You will obviously dip into the account. So work with a budget to make sure you do not run out of money for food in the first place. The more dangerous indiscipline is not around basic expenses but the other lifestyle costs such as entertainment . Without a budget to help tame this kind of spending, it is very easy to put the business at risk and even go into debt. Separate your expenses into needs and wants. To help keep spending in check, do not carry around the company cheque book. Also, do not have mobile payments by clients sent to your personal line.
4. Track the expenses you are incurring on behalf of the business.
This is one thing I wish somebody had told me. We make phone calls to clients. We drive our cars to meeting or incur transport costs. We pay for coffee. We buy a book to help us with work. We even go for some training. It may look like small amounts but they add up. One of our students realised that in the last three years he had spent half a million on these sorts of expenses. If you don’t record it, you won’t know and you will not be able to claim it. Your business may not be able to pay you now but it will. This may be the money you need for personal goals. Keep records and receipts.
5. Have an emergency fund.
Business has cycles and sometimes you just need to have enough money to get through a cycle. The emergency fund is what will enable you to handle your personal expenses in the event that you cannot remove money from the business. Assume the business cannot pay you at all. You still need to be able to pay rent, eat, school fees, transport among others. Establish this fund.
Which of these five do you need today in order to grow your business and personal financial life stronger?
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To your success,
Robert
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