We’ve all become fairly used to managing our personal finances. So why does the mere mention of business finances send many of us into a tailspin? It may help to begin to think of your business finances like your own personal budget.
After all, every business needs a set of financial goals, just like every person should have financial goals for themselves. Goals all have one outcome, financial success. And why wouldn’t you want that for your business?
Think about these personal financial goals and how you can adapt them for your business.
Keep an emergency fund
This one is simple. An emergency fund, essential for both personal and business finance, ensures you have a little bit of cash spare should the worst happen to you. You really do never know when an emergency could happen to your business.
This could mean a client not paying their bill or expected work falling through. Your emergency fund should be enough to cover the running expenses of your business for at least a few months.
Spend less than you earn
The most simple lesson in finance but the most important. Don’t borrow money. Not to buy things and not to pay your bills. Doing this will mean you’re always behind with your expenses and can never get ahead.
Of course, the exception is when you need to borrow morey from the bank in order to expand your business. These loans, for machinery finance or other essential equipment, will be an important part of your business plan and cash flow projections. The outcomes of these types of loans should be clear and payment terms must be stipulated upfront.
Ensure your expenses are minimal
In the personal finance world, this involves living in a tiny house and driving an old car. In the business world, there are a number of ways to make this happen. You don’t need to have offices in the most upper-class part of the city. You don’t have to have an office so big that every employee has their own private space.
By minimising your expenses in these areas, you can already make a significant impact on the amount of money your business is able to save. And without having a negative impact on you or your staff members.
Increase your net worth
In personal finance, the goal of many people is to pay off all debts and save enough money to never work again. A business works in the same way, with a few differences – you do want this to continue, just not with your continued input.
In business, you should aim to pay off all loans and debts, and increase your monthly income so that you’ll turn a profit every month. Soon you’ll have enough cash flow that you’ll be able to pay your own salary and reinvest into the business.
Thinking carefully about both your business and finance goals is essential. These simple goals will soon see you making more considered financial decisions, in your business and in life.