Small business owners are quite unique individuals. They have their own special entrepreneurial way of looking at life and a distinctive way of reaching their goals. That also means that small business owners have some unique challenges when it comes to building wealth and personal finances.
Here are five personal finance tips for small business owners.
Separate Your Personal and Business Finances
It is very important that small business owners and the self-employed do their best to keep personal and business finances separate. Keeping your finances separate will make it a lot easier to calculate taxes and evaluate your company, as well as create an appropriate budget for both your personal and business spending. Plus, having a separate credit card for your business will allow you to build good business credit. With two clearly separate sources of income and two separate lists of expenses, things will run a lot more smoothly.
Pay Yourself a Regular Salary
If you follow tip one above, then the next logical step is to pay yourself a salary. You can’t have personal finances separate from your business finances if you don’t have a personal source of income. To keep your business and personal expenses separate, it’s crucial that you give yourself a wage. It’s also a great way to test profitability and the return on investment you’re making each month. Start out with a low salary and give yourself more as you can afford to do so, then budget accordingly.
Create a Budget
Creating a budget for your company will help you save money for a rainy day, raise your own salary, and invest what you can afford in return for more income. It will also help you keep track of what’s important and make you think twice about making impulse buys. Lastly, bringing in more than you pay out will stop you from bleeding money into your business or going into debt. Try to maximize your income by minimizing your expenses.
Start Saving for Retirement
Saving for retirement is a financial tip everyone should follow. Small business owners, in particular, may have a unique opportunity to set up business retirement plans, like SEP IRAs, in order to save more money for retirement. While it’s a great idea to take advantage of your status as a business owner, remember not to put all your eggs in one basket. You’re already relying on your business for income and insurance, so use retirement savings as an opportunity to invest money in other enterprises.
Don’t Ignore the Value of Professional Help
We can’t all be good at everything, and the financial side might not be your strong suit. That’s okay. When you feel out of your depth, don’t dig your feet in and try harder. You might get in some serious trouble when you don’t know what you’re doing and make some big mistakes. Instead, ask for help. As with everything in life, recognizing your own limits is not a failure.