When you are living and breathing your start-up dream, when it seems like everything you do and every thought you have is about how to build and grow your company, it can be easy to lose focus on other things. You may not exercise as much as you should, eat poorly, or not spend as much time as you used to with important people in your life.
Your startup’s finances are essential, but don’t forget to manage your personal finances.
Similarly, with all the attention placed on securing capital for your business and keeping your company’s finances in order, your personal finances may get left unattended and your personal savings may become dangerously depleted — if you have any savings at all.
Keeping your personal finances in order while building your business is important for one very simple and very sobering reason: your start-up may not make it. If the doors were to close, and with it your source of income (as minimal or unpredictable as it may be), good savings habits can keep you on your feet if the ground beneath them collapses.
Five simple personal savings tips all start-up founders and entrepreneurs should keep in mind:
- It’s not personal; it’s business.
You may be pouring your own money into your business, but it is crucial that you keep your two financial houses separate. Make sure you have distinct bank accounts for each, and that all contributions and distributions are well-documented. Commingling funds can expose you to personal liability for your business debts as it is one of the most common ways entrepreneurs lose the protections provided by an LLC or corporation. Also, if you want to attract investors or sell your business, blurred financial lines between you and your company can make things much more difficult. - Make and keep a personal budget.
You probably have a good grip on your company’s revenues, expenses, and cash flow, knowing how much you need to bring in to stay afloat. You know that your start-up can run out of money quickly, and that you need to plan ahead to keep that from happening. The same applies to your personal and household balance sheet. You need to keep your outflow lower than your inflow. This can be particularly hard for entrepreneurs given the irregular income inherent in starting a business, so it is even more important to keep the more predictable side of the ledger – your monthly expenses – as tight as possible. - Backstop your cash flow.
Speaking of irregular income, the ebbs in cash flow that will inevitably occur may necessitate another source to pay expenses. A personal line of credit can be tapped in such situations, so long as you are diligent about paying it down when the cash does come in. - Automated bill payment.
As noted, your focus on your business can cause personal obligations to fall through the cracks, including paying your bills. Setting up autopay on recurring accounts can keep that from happening and bring helpful predictability to your cash flow. - Hire an accountant who gets start-ups.
The tax code can be a source of frustration and pain for entrepreneurs, but it also contains hidden possibilities which may actually improve your financial picture. A tax and accounting professional who focuses on the unique needs of start-ups can help you find and take advantage of these opportunities.
If you are an entrepreneur and have questions or are seeking assistance with your personal or business finances, please contact us. We welcome the opportunity to assist you.