Personal Finance Tips For The Entrepreneur

Personal Finance Tips For The Entrepreneur

 

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 (Click to Tweet this thought)

  • 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 when it comes to 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. If you have a problem putting aside Kes 10, 000 today you will not be able to put aside one million shillings.  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. The business money belongs to the business. Your money is yours. Pay yourself. You can do this with a salary, dividend, bonus, drawings or a combination of things. You can start small and work your way up.

  • 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. They help us ensure we are moving forward. Your business financial goals are not your financial goals (Click to Tweet this thought). Problems arise when you mix them up. Set separate personal goals and then work backwards. In other words, think through what will need to happen for you to achieve your objectives. 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? For example, you may need to earn a salary of a certain amount, to manage the mortgage payments. 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 the process of buying a house. Your goals can range from short term ones like going on holiday to more long term ones like retirement. To accomplish them you will need personal savings and investments that have nothing to do with the business.

  • 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. When you own a business you do. No one will stop you from withdrawing as and when 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 in its account. You will obviously dip into the account. So work with a budget to make sure you do not run out of the food money in the first place. From what I have seen the more indiscipline is not around basic expenses like food but the other lifestyle costs e.g. entertainment and buying unnecessary things. 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 for it. Suddenly the business overdraft is not quite being used for the correct purpose. Separate your expenses into needs and wants. Food is a need but eating out is a want. You will probably have both items in your budget but this will allow you to know what to cut off when you need to. 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.

This is one thing I wish somebody had told me. We make phone calls to clients. We drive our cars to meetings or incur transport costs. We pay for a 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 realized that in the last three years he had spent half a million shillings 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 those personal goals. Keep records and keep the receipts.

  • 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 etc. Establish this fund. You don’t help the business at all if you go to work hungry or you are worried about your kids being kicked out of school. It helps to know you have anything from one-month worth of bills to even six months or more that you can count on. This is also important for those transitioning from employment. Income generation may not work out as planned immediately.

Waceke runs an Entrepreneurship Program, The Centonomy Entrepreneur. For details email her on  waceken@centonomy.com or Facebook/Centonomy or Tweet @cekenduati or visit www.centonomy.com and learn more about Centonomy.

 

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