How to Manage Your Personal Finances as a Business Owner

March 25th 2019

by Dr. Andrea Johnson

Andrea is the owner of ANJ Consulting Services, where she assists clients with developing solutions to their financial problems through individual consulting, workshops, and courses.  She holds a bachelor’s and master’s degree in sociology (North Carolina A&T State University and North Carolina State University respectively), a doctoral degree in Leadership Studies from North Carolina A&T State University and has completed the coursework for the CERTIFIED FINANCIAL PLANNER™ Certification Education Program through Wake Forest University. She is also a Certified Financial Education Instructor and has written several books on entrepreneurship, credit, and college planning.

Discussing money is an uncomfortable topic for many people. But it’s important, especially if you’re a business owner.

Lacking knowledge on how to manage your personal finances can lead to missed opportunities to invest in your business and community, add additional stress to your life, and result in low credit scores.

In this article, I will share tips on how to develop a budget, survive slow months, manage debts, and protect your finances.

Developing A Budget

The first step in taking control of your finances is to know how much you’re spending each month. As a business owner you will have a personal budget as well as one for your business. Your budget includes your bills, living expenses such as food, household and personal items. The following tips will assist you in developing your budgets:

• Write down fixed expenses along with their due dates. Fixed expenses are expenses that remain the same every month (rent, car payment, student loan, etc.).
• Write down variable expenses (food, entertainment, etc.). Variable expenses are expenses that may change from month to month. In order to get an accurate number, I recommend saving your receipts each month or recording totals in your phone/computer. At the end of the month, add your receipts to see what you spent for each category. When it’s time to add up the receipts at the end of the month, they’re already organized.
• Add your fixed expenses and variable expenses together at the end of the month and record what you have spent.
• Identify categories where you overspent and decide how much you will reduce those expenses.
• It’s important to be realistic when developing your budget. If you create an unrealistic budget, you are less likely to stick with it.

In addition to creating separate budgets for your personal and business expenses, you must also keep separate bank accounts for these expenses.

Surviving Slow Months

Creating a budget will allow you to plan for those months when business is slower. Many business owners make the mistake of not setting aside money during busy months when revenues are at their highest. As a business owner, I have personally experienced fluctuating income and it can be extremely frustrating.  However, following a budget, having an open line of credit, and managing credit cards properly has helped me to survive the slow months.

An open line of credit, also referred to as a revolving line of credit (not to be confused with credit cards, which are also forms of revolving credit), is a loan that can be used repeatedly. You can use the cash from the loan to pay personal and business expenses during slow seasons. To learn more about requirements for opening personal and business lines of credit, contact local banks and credit unions. Even if you don’t need lines of credit right now, you should still inquire. The best time to apply for credit is when you don’t need it.

In addition to implementing a budget and using lines of credit, it’s also important to develop a marketing plan. For several years I have been working with a business coach who specializes in marketing. This has been extremely helpful and has also resulted in increased revenues, even in months that are usually slower. If you do not have the financial resources to hire someone to assist you with marketing, contact your local small business center to learn about free counseling services and workshops.

Managing Debt

Managing debt can be overwhelming at times, especially if you are running a business. If you are having challenges with managing your debt, I have provided tips below to assist you.

• Pay all bills on time, even if you can only pay the minimum payment on credit cards. Paying the minimum amount should only be temporary. When your revenue increases you can increase the amount of your payment.
• Ask your credit card company to lower you interest rate. Also take advantage of balance transfers to credit cards with lower interest rates.
• Keep credit cards open even if they are near their limit. Closing them will erase all positive payment history for that account and will drastically decrease your credit scores. Although your credit scores decrease when you use more than 30% of your available credit limit, this drop is only temporary. Once you begin paying down your balances, you will see an increase in your scores. However, late payments will remain on your credit reports for years.
• If you have a budget in place and follow it, you will find that your credit resources last much longer. Your credit should be viewed as a resource when your cash flow is low and treated as such.

Reviewing Your Credit Report

In addition to budgeting and properly managing your debt, it’s important to review your credit reports. You can visit www.annualcreditreport.com to review your credit reports for free. You are entitled to one free credit report from each of the three bureaus (Equifax, Transunion and Experian) every 12 months. Review your credit report from each of the three bureaus because not all companies report to all three. You could have errors on one report that do not show up on the others.

If you use Credit Karma (www.creditkarma.com) — which provides you with credit reports and scores from Equifax and Transunion — you should also visit Experian (www.experian.com) to obtain your free Experian report.

Protecting Your Finances

An overlooked aspect of managing personal finances is developing and implementing a plan to protect them.

As you continue developing your personal and business budgets, you should also include insurance (business, life, and disability), retirement, and estate planning into your financial plan. Even if you do not have the money to pay for these items, they should still be included in your budget. Begin speaking with professionals to learn more about the fees associated with these services. Once you have this information, review your budget to see where you may be able to reduce expenses in order to pay for these services.

If you have reduced your expenses as much as you can, review your marketing to plan to explore ways to generate additional revenue.

Next Steps

You may get discouraged and feel like giving up. But the solution is to take small steps each day towards reaching your financial goals. Once you do this, you will begin to feel a great sense of confidence.

Remember, managing your personal finances is not a destination — it’s a long-term process.