Increasing numbers of people are taking advantage of the renewed strength in the economy and setting up their own business. In doing so, they will be experiencing a fairly steep learning curve, a key part of which is coming to the understanding that being a small business owner is not just a career but a lifestyle choice. While the advantages of running your own business are significant, there are also challenges; many of these challenges stem from the need to manage the relationship between personal issues and business issues, as the line between the two can become unhelpfully blurred. This is particularly acute when it comes to dealing with finances.
- If you are not clear on what money is personal and what is for business, it is almost impossible to tell which parts of your business are profitable and which expenses belong where. This can quickly lead to dangerous confusion over tax obligations, potential over- or under-payments and even breaching of legal requirements.
- Personal and business debts are two very different things and have to be managed in different ways. Using personal credit cards, overdrafts or re-mortgaging your home may seem like quick ways of securing funds, but are hugely risky and should be avoided at all costs.
- It is also important from a psychological point of view to make a distinction between home and work. This is a particular challenge for small business owners, but one that must not be ignored. For example, personal savings and pension plans are a source of security that should provide mental and emotional comfort. Connecting these too closely with your business interests is unhealthy as it can impact that sense of security. Have a proper financial guideline to ensure this. You can get help from Lincoln Frost or similar financial advisors on how you can manage your business finances and fund management, for better personal and business life.
What can you do about it?
The key thing here is to make sure the line between personal and business finances remains clear and strong, so that whatever happens in the business world can be contained without too much damage to personal finances. So, as a general rule of thumb, avoid using money from your personal finances for business purposes. This means that you would need to ensure that you have two separate accounts–one for your personal finances and the other for business purposes. Besides this, it would be a good idea if you keep a tab on both accounts so that you can track your finances. For instance, you could use business online banking applications to keep an eye on your merchant account. Likewise, a personal banking app could give you a clear idea of the money in your personal account.
Also, get a good grip on financial management in general. If this is not an area of strength for you personally or you do not have the time, consider enlisting professional help from organisations like pocketaccounts.co.uk. Contract accountants like this have specialist expertise in this area, and will give you the time and space to focus on the management of your business and the actual delivery of your product or service. While procuring such help does of course add to your overheads, think of it as an investment into the financial security of both your home and your business life.
A top priority
Detailed and careful financial management should be a priority for every business owner, and small business owners are no exception. In fact, given the interdependent relationship between home life and work life that small business owners experience, it is perhaps even more important. Fortunately, by taking a few precautions and adopting best practice, risks can be mitigated and challenges addressed.