Managing Business Finances and Personal Finances
In order to manage these two finances, they should be kept separate from each other so money is easily tracked and personal funds are not consumed by business expenses.
Keep Separate Accounts
Money for a business and money that is spent taking care of a home and family should be maintained separately. This separation helps you avoid confusion when dealing with taxes or other legal payments, holds you accountable for the money that belongs to the business, and helps you keep track of exactly how your money is being spent. This separation also protects your personal finances from business debts or costs if the business does not succeed.
Ways to Keep Accounts Separate
- Have a separate bank account for your business. It is easier to track business expenses if they are on one account, and you will have a clearer picture of your business’s income.
- Have a safe place to keep your money. Talk to other business owners about what banks and savings plans they use.
- Have a good accounting system to help you track your expenses. Talk to others who have successful businesses and ask what accounting systems work for them.
- Give yourself a salary, and make your salary one more business expense.
- Decide ahead of time what amount from your personal savings you are willing to put into a business. Have a set limit to help you determine when a business is not worth spending money on.
Do Not Misuse Business Funds
As the owner of a business, you may be tempted to see all business profits as personal income, but even if the money is under your management, it should not be treated as personal funds. Doing so can create additional risks. For example, if you start borrowing money against the business and then find you cannot pay it back, your business is at risk, as are any investments others have put into it. Below are other precautions to follow with business funds.
- If you have to get a loan for your business, use it only for business expenses.
- Make it very clear that if the business yields more money in a time period than expected, it should be saved or reinvested. You and other employees have set salaries, and that does not change until you are reevaluating your business’s financial analysis
Have Your Personal Finances in Order
The counsel from the Lord and His servants has always been to have your home and finances in order.
“If you have paid your debts, if you have a reserve, even though it be small, then should storms howl about your head, you will have shelter” (“To the Boys and to the Men,” Gordon B. Hinckley, Ensign, Nov. 1998, 54).
If you want to start a business, here are some advantages to having your personal finances in order.
- You already know how to spend carefully and keep detailed records of income and expenses.
- You probably have good credit and a reputation for being responsible with money, which could help you earn support for a business.
- You have a record of your finances if you need a loan. Presenting well-ordered finances to a bank will help your chances of qualifying for a loan.
- You should have an easier time setting aside savings to provide for your family while you are starting a business or to create savings to fund a business.