According to every business expert, you should keep your personal and business finances separate. We are also completely in agreement.
Separating your personal and professional lives, on the other hand, ought to be limited to monetary transactions. We all acquire knowledge—lessons from life—that can easily be applied to our professional lives as well as our personal lives.
After all, knowledge is power, and where that knowledge came from really doesn’t matter if it helps you advance in your business.
To that end, there are a lot of personal finance advice that can help you manage your business’s finances.
Let’s look at some of them:
1) What you require versus what you desire:
You might want a Lamborghini, but you should know that it won’t work well for a small family that is growing: it won’t use much gas, there won’t be room for groceries, and you won’t be able to take the kids to soccer practice in it. Despite your sincere desire to have it, it simply does not make sense to you.
The equivalent goes for our business. You might want that $50,000 piece of equipment or that building with 50,000 square feet. However, these kinds of purchases simply do not make sense for your company if you cannot use them to generate more revenue than they cost.
Additionally, it is not capital purchases. Is there really a need for a foosball table in the break room for your employees? Or, is it really necessary for your company to have a $500 per month T-1 line when a $50 per month DLS line would suffice?
Being in business is not about getting what you want; rather, it’s about getting the assets you need and using them to grow the business by making more money than it costs to get.
Don’t spend your limited funds on something you don’t need for your core business!
2) Living Check To Check:
In most cases, you will run out of money before your next paycheck arrives if you overspend in your personal life.
What happens is that as soon as you get paid, you look for ways to spend it right away, most of the time on things that leave you with little or no money left over. Some even spend their paychecks before they even get it. Although you had a wonderful time, the money quickly runs out.
Then, about halfway between your last pay period and your next pay period, a week before your next pay day, you have the chance to do something truly amazing that could either make your life better or even increase the amount of money you have available for your own use.
However, you are forced to decline because you lack the funds to take advantage of the opportunity and it will not wait for your next paycheck.
This is an excellent business lesson. Too many businesses spend their revenue before or as soon as they receive it, regardless of whether the spending helps the business survive.
Example: I collaborated with a brand-new business owner who assisted medical professionals in collecting insurance payments. I took this entrepreneur around to all the free specialist workplaces I could find and assisted him with pitching his administrations. He got some business from one of these contacts after they bit. He was given approximately $10,000 in claims to collect from the doctor. This business owner received a 10% commission and was able to immediately pay approximately 90% of those claims.
Now, rather than putting that $900 into his business to grow it or set aside some of it for new opportunities, he uses it for personal things like a new gym membership, going out to dinner with his friends, and buying a new cell phone with a very expensive plan—not for his business but for his own use.
The doctor referred him to a college friend and colleague in a town 85 miles away because he was so impressed by the business owner’s ability to collect. However, this proprietor had no choice but to decline the new business—not because he was too busy or incapable of doing so, but rather because he lacked the funds to travel to the other town.
This meant that not only did the owner of the business lose out on potential new clients, but the doctor who referred them also felt let down, and as a result, they stopped doing business with him.
3) You’ll live better if you have more money:
In our private lives, when we run out of money, we typically look for more. Take out a loan from the bank or even a payday loan. Even though this might work for a while, giving us more money to spend, if we don’t change what we spend our money on, we’ll soon be back in the same situation: short of cash, with a life that isn’t better but might be worse off because we still have to pay for that new money.
In business, many entrepreneurs find that their costs exceed their profits, especially when profits are falling. The owner of the business, on the other hand, believes that getting more money is the only solution rather than investigating the company’s spending habits or the reasons for stagnant or declining revenue.
If the owner of the business applies for a loan, recruits new partners, or attracts outside investors, but does not address the issues that led to the cash flow issues in the first place, not only will the additional funding not be of any assistance to the company, but it may also drive the company further into its financial predicament, resulting in additional issues and possibly even the closure of the business.
4) Don’t keep doing it if it doesn’t work:
Too frequently, good money is wasted. It is acceptable to make errors. You move on and learn from them. However, if you don’t learn and keep doing the same thing, you’ll fail again.
A neighbor of mine didn’t want to spend $1,000 on a riding lawn mower because he had other priorities. As a result, he paid $500 for a used mower that he found in the newspaper. After fourteen days it separated and would cost about $200 to fix it. He went back to the newspaper and paid $500 for a different used mower instead of fixing it. He said it was a waste to spend the money to fix this one again because it broke down again. However, he went to Craig’s List this time and found a different used mower for only $400. Also, kid was he blissful.
He ended up spending $1,400 and a lot of time instead of spending $1,000 on a new mower. Additionally, he has not mowed his grass in months, so I don’t believe this $400 mower is still working.
I see businesses spend a lot of money on advertising but never see any additional results because they believe that’s the right thing to do.
As a result, they keep doing the same thing: throwing good money after bad, rather than finding out where their potential customers are.
As a result, despite spending money to advertise in the same newspaper each month, they don’t see any new revenue.
In business, everything should be measurable. Continue carrying them out if they meet expectations. Scrap them and try something else if they don’t work.
Why continue spending $1,000 per month on print advertising if it does not generate at least $1,000 in new revenue? Try something different, like advertising online (where your customers hang out) or on television during a show that your customers watch. Then, evaluate the outcomes. Your company will benefit even more if they outperform what you were doing.
Things like your business bank account, expenses, financial statements, and credit cards should be kept separate in a business. As a result, your records will be easier to manage and you won’t have to deal with the IRS as a result of not mixing funds.
