With November being National Entrepreneurship Month, it got me thinking about friends and clients who own and manage their own businesses.
They find that what it takes to start, run and grow their own businesses — from putting in long hours and weekends to wearing many hats—is quite rewarding. On any given day they may serve as visionary, business developer, service provider, marketer and more. They also need to be prudent money managers, because managing both their business and personal finances well is an important component of running a successful business.
Here are a few simple reminders to consider for maintaining healthy money management practices as an entrepreneur.
Keep It Separate
You are your business, but not necessarily when it comes to accounting. One of the most important things to do is separate your personal and business income, expenses, accounts and financial records. Businesses have a set of rules for compliance and taxation that must be met, just as individuals do. Plus, separating your accounts can have many benefits from financial, tax and legal perspectives, including making it easier to file your taxes, sell your business and potentially protect yourself from litigation.
In addition to basic planning needs like creating a personal budget and savings schedule, entrepreneurs must contend with the more complex financial needs of their businesses. Accountants, lawyers and financial advisors can help you define your personal needs and goals as well as creating a plan for you and your company. A goals-based strategy can help you navigate what you want to achieve for yourself, your family and your company.
Save for a Rainy Day
As a business owner, you know that your income could change from month to month. It’s important to save for the times when your income might be on the low side. While it’s tempting to spend the extra cash you have during a lucrative month, it’s important to remain disciplined and contribute to your rainy-day fund—often referred to as an emergency fund. Have an emergency fund equal to three to six months of nondiscretionary expenses to help withstand a sudden financial disruption. Having insurance for unforeseen expenses is also helpful in protecting yourself.
Continually Think of Your Older Self and Retirement
Your older self means exactly that: the future you. Consider what you want your retirement years to be like, and what your finances will need to look like to maintain your preferred lifestyle. To attain that vision, you’ll need a smart retirement planning strategy.
Unfortunately, many entrepreneurs don’t consider retirement planning a priority, and that is problematic. According to a recent survey by the small-business resource website Manta, 34 percent of entrepreneurs don’t even have a retirement savings plan.
To avoid being a “no plan” statistic, do some research online and consult with a financial advisor to find a retirement savings plan that is right for you. You’ll need to be proactive and self-motivated about your strategy and implementing it — more so than an individual who is paid as an employee with automated paycheck withdrawals to retirement plan accounts and company matching of a 401(k) plan. With proper planning, options like a Simple IRA (individual retirement account), SEP-IRAs or 401(k) plans could put a financially secure retirement within your reach.
Owning your own business offers great rewards for you and your family, possibly for many generations. To make the most of the lifestyle opportunities that being an entrepreneur provides, aim to have both a successful company and a steady source of income to use and enjoy—not only now, but also when your older self chooses to retire.
Photo by Sharon McCutcheon
Lisa Taranto Schiffer
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