6 Practical Financial Management Tips for Entrepreneurs
Managing personal finances can be challenging. Add in the complexity of owning and operating a business, and those challenges are exacerbated. Many entrepreneurs struggle to get their finances in check, even as their businesses grow and become profitable.
The key to successful financial management as an entrepreneur is to take things one step at a time. Here are six practical financial management tips to get you started.
Monitor Your Credit Score
First, start by reviewing your credit report and monitoring your credit score. Your credit score is a summary of your overall borrowing history and financial health as it pertains to debt. Your credit report explores the factors that influence your credit scores, such as missed payments or a high debt ratio.
Monitoring your credit score is a great starting point as it creates a tangible way to track your progress. It also offers insights into what issues you should focus on correcting. For example, if you have a tendency to forget to pay your minimum credit card payment on time, you can put automation in place to correct that problem.
Keep Detailed Financial Records
Keeping detailed financial records with the help of a financial process automation software like SoftCo is a must for entrepreneurs. Not only is it important to track your cash flow, but this information will also impact your personal life.
For example, banks and landlords often require proof of income before allowing a mortgage or lease. Self-employed individuals are often flagged as a higher risk for defaulting on a loan. Having documented financial records and proof of income can ultimately determine whether you get a place to live. See more information here: https://www.thepaystubs.com/blog/human-resources/self-employed-heres-how-to-show-proof-of-income
Maintain financial records and set aside time each month to update your accounts so that you stay ahead of tax season.
Set Financial Goals
Entrepreneurs often set financial goals within their business but fail to set personal finance goals. Setting personal financial goals can give entrepreneurs something to work toward the outside of their business, such as paying down debts or creating an emergency fund.
When setting financial goals, breaking them down into manageable, actionable steps is a must for success. For example, a long-term goal of paying off credit card debt could become a monthly goal of paying down an extra $200. That becomes a weekly goal of cutting expenses by $50.
Setting clear goals often acts as the motivation people need to get started. If there’s perceived value and rewards at the finish line, you’re more likely to start running.
Pay Yourself First
Drawing a salary is one of the best things you can do for yourself as an entrepreneur. Having a consistent “paycheck” will help with financial planning. Many entrepreneurs make the mistake of withdrawing funds from the business as needed and end up overdoing it and taking too much or underdoing it and having to swipe the credit card.
Take a look at your average monthly income, and set a reasonable salary that ensures you still have money to cover the expenses. On months when your business performs better, set aside money to get you through the lean months.
Keep Business and Personal Finances Separate
Another common mistake entrepreneurs make in financial planning is failing to separate business and personal finances. Not only does this lapse make it harder to manage money, but it’s also a nightmare should an audit take place.
If auditors can’t see ample proof that the money you’ve earmarked for business expenses was truly for business expenses, you’ll face a hefty fine.
Work with a Financial Planner
Finally, consult a financial planner who specializes in entrepreneurs and small business owners. This expert will help you plan for the future and create financial contingency plans that keep you and your business afloat in a worst-case scenario.
Financial management is nuanced for entrepreneurs, but it doesn’t have to be a headache. Start by setting some financial goals, and use these tips to get your house in order.