As a business owner, you’re often deep into the work for your customers and clients. You have a decent idea about your objectives and growth plan. Over the years, you’ve developed something you’re really proud of and hope to build even more.
Every quarter you take a look at revenues, expenses and upcoming decisions. If you’re really on top of things, you have tax planning and strategy sessions with your accounting service.
Simply put, you’re aware of financial and operational goals for the business, and have a plan to achieve those goals. And you have a good idea of how things are going to look in the future. But how about yourself and your own personal financial planning? What about your individual finance goals?
As we kick off 2021, what are you personally working towards?
It’s easy to tie yourself completely to your work. This is especially true for owners who put so much effort into their companies. Doing so sometimes creates one of two problems:
- Too much focus on the success of the company while your personal finances are dormant, debt may come into play or you’re just not planning a good exit strategy.
- There’s no real difference between personal finances and those of the company itself
If either of these sound like your personal finances, it’s time to take a look at the situation, separate things and gain some clarity.
Now is the Perfect Time to Start
As you sit down to review the business’ previous year and to plan for the coming years, spend some time thinking about your personal financial situation. Now is the perfect opportunity to dig into your own finances. Depending on how much focus you’ve had on this topic in the past, that could include setting goals, tax planning and planning for retirement.
As the popular Chinese proverb goes, “The best time to plant a tree was 20 years ago, the second-best time is now.”
The Business Owner’s Trap
Too often, with their personal income tied to the business’ ups and downs, founders and entrepreneurs alike ride this rollercoaster of income. But what if you flipped that script, and implemented something along the lines of Profit First in your own business and personal life?
Many financial gurus talk about the concept of paying yourself first. For employees, that means setting aside a specific amount out of every check for specific purposes — typically for saving and investing.
Why not treat yourself and your business the same way? From each check, set aside a certain amount to pay yourself.
If you’re not already doing it, think about the importance of two things:
- The importance of taking a salary (new hires expect a salary, you should, too)
- Having personal financial goals — not just business/revenue growth goals
Founders and entrepreneurs often focus mainly on business revenue and growth. In turn, they neglect their own personal financial goals. When they do think about personal finances, it’s often only in terms of taking a portion of whatever is (hopefully) left at the end of the month, quarter or year.
Exiting the Rollercoaster
Of course, you have goals and a plan for your business. But, having a proactive plan for your own personal financial goals is an important step to getting off of that financial rollercoaster. Ensuring that your financial situation is under control is also a good way to reduce your stress.
To define your financial plan, ask yourself deep questions and think carefully about the answers.
A good starting point is with questions like:
- How much do I want to make in a year?
- How much would I like to give away to charities and causes I believe in?
- How much do I want to invest?
And remember, you can always change your goals. If you determine that what you’ve defined isn’t working for you, make some adjustments.
If your business is your primary source of income, start there. Defining personal financial targets also has the added benefit of helping you crystallize the next steps for your business.
However, it’s critical to make your personal goals precise. Instead of, “I want to make more money,” define some specific targets.
Say things like:
- “Next year I need to earn $95k, with a 10% growth per year, excluding the amount I’m investing.”
- “I’d like to donate $7.5k per year to each of my two favorite charities.”
- “Investing $40k each year will allow me to reach my retirement goals.”
With imprecise goals, you’ll just end up somewhere, in some situation. With precise goals, you’ll be more likely to reach the specific destination you have in mind.
Putting it into Practice
Using the answers to these questions, you can work backward. Look at your business with the mindset of, “What would have to happen in order to fulfill those goals and get me where I want to go.” Don’t forget, this can have benefits for both your business and personal financial goals.
This approach allows you to be realistic with financial goals, and to make sure you’re aligned in every area. But it also allows you to make sure you’re making the most out of your business’ potential.
Defining specifically what you want the business to provide in terms of personal income can help you measure and adjust the performance of the business. If you’re not satisfied with the current situation, you can use this goal setting exercise as a starting point for improving your business.
Maybe you need to figure out how to create additional revenue streams, or to grow your client base. Maybe your business model simply needs a few tweaks in order to keep more of the revenue you’re already bringing in. It’s up to you and what you need.
Don’t forget, you can always adjust as necessary. After running the numbers and working at it for a few months, maybe you’ll decide that your plan doesn’t work for your business right now. Take a step back and figure out how you can at least move it in the right direction.
On the other hand, perhaps after a year you’ll decide that you simply don’t need that much take-home money. You’d rather invest more for retirement, or reinvest more back into the business.
The bottom line is, as a business owner it’s up to you to properly plan for your financial goals. And it doesn’t hurt to consult a professional. Treat your personal finances like you would treat your business or a client’s finances.
If you’re an entrepreneur and are looking for assistance with your personal or business finances, please contact us. We’d love the opportunity to assist you.