Friday, August 18, 2017

5 Tips for Balancing Business and Personal Finances

finance balance
When you own a business, you become responsible for the management of both company and personal finances. In the early years, there’s a risk of overextending personal funds to successfully establish your business. It can be tempting to take home a small salary, borrow against your personal credit and work very long hours just to keep the business afloat. According to USA Today, around just 20% of businesses make it past their first year. If you’re lucky enough to be one of the 20% and your business begins to generate regular profits, you might need to resist the urge to lean on your business so that it can support the cost of your personal life. Dipping into financial reserves, that should really be left in your company account to cover future and unexpected business challenges is not a good idea. There are many ways of balancing the scales between business and personal finance needs and these are some of the most effective.

1. Keep saving

Whether just starting out, or with a fairly established business under your belt, it would be foolish to ever stop saving for those rainy days. In your personal life, you never know when you might need to cover unexpected bills for medical treatment, house renovations or car repairs. When it comes to your business, you may need to update equipment, move to a bigger office, make repairs to company buildings or raise staff pay to be in accordance with new wage requirements, for example. Even though taking out a business loan is always a valid option as a way of dealing with unforeseen expenses, it makes sense to have a savings fund to dip into when the need arises.

2. Maintain business and personal funds separate

It’s much easier and safer to keep business and personal funds completely separate. As well as improving the credibility of your business, this simple measure also protects you from becoming personally liable for any kind of problem that occurs as a result of your business in the future. You’ll need to organize your finances so that you have separate bank accounts, separate bill payments and separate taxes.

3. Spend less than what comes in

It requires a conscious, continual effort to keep both personal and business expenses below income. The gist of Parkinson’s Law is that however much you earn (or make), your expenses will increase to match the amount of money coming in. This means that the more we earn, the more we will spend; the more money our businesses make, the more expenses we’ll find to drain ourselves of that income.

The only solution is to actively keep expenditure in line, which can be a little more complicated when running a business; mainly because monthly income tends to be less consistent than that of a contracted employee. The key lies in being prepared and in knowing where you can make cutbacks each month to keep things in check should the need arise.

4. Pay bills automatically

By setting up automatic payments for both personal and business needs, you give yourself one less thing to worry about on a monthly basis. Administrative tasks can really drain the time you have for other more important work or time that you want to devote to family and friends. Automatic payments also remove the risk of having to cover the cost of late payment fees.

5. Get professional tax advice

Tax regulations are prone to change, which means it can be difficult to keep fully on top of all developments affecting your personal income and business taxes. Anyone managing their own business should seek out the professional advice and support of a tax advisor. Apart from helping you to keep your taxes in order, a tax advisor can also offer invaluable information of new tax savings opportunities, as and when they come into action. You’ll be able to find out what kind of deductions you can claim for home office equipment and services, employees against contractors and business expenses.

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