A US bank study found that 82% of businesses that fail cite cash flow problems as one of the leading reasons for their failure, according to statistics on Fundera. Many first time small business owners are unfamiliar with the steps of separating business and personal finances. After all, your personal and business fortunes are linked. However, you need to assess your professional and personal funds separately to avoid cash flow and tax issues.
With that said, it’s vital to invest time and energy learning how to manage your bank accounts as a solopreneur. If you’re a small business owner looking to separate your assets from your venture to improve cash flow, here are a few steps to maintain a balance between business and personal finances.
Open Separate Bank Accounts
Creating a balance in your business and personal financial goals is key to ensuring growth and success, and the best way to do this is by opening a bank account for your business. That way, you won’t spend hours trying to separate your transactions when preparing taxes. To open an account that handles your daily business transactions, you’ll need to choose a legal entity. Therefore, decide whether you’ll form a limited liability company, nonprofit organization, or S Corp. Remember, you don’t need business credit cards, but if you must have one, make sure it’s for business-related expenses only.
Consider Buying Your Business Premises
Purchasing a business premise is another great way to balance personal and business funds. When you buy a retail store, manufacturing plant, or office space, your costly expense in business becomes an asset. Note that you can use this asset as a retirement plan because you can sell it and use the return on investment to cater for your expenses when you retire. Alternatively, you can rent your business building out to ensure you have a flow of income throughout your retirement years.
While buying a business building is costly, you can navigate this process with ease if you consider applying for a mortgage. Of course, you’ll need a good personal credit score to get a property loan. Most importantly, you must find a trustworthy lender. Like many solopreneurs, you may want to work with brick and mortar mortgage lenders because they offer great deals, but an online mortgage lender might provide a variety of options. Typically, online home loan lenders provide customized mortgage offers and ensure borrowers get easy access to loan officers. When you explore mortgage services online, you’re able to compare loan rates and choose the option that fits you best.
Create An Expense Budget For Your Business
There’s no doubt that having a personal expense budget is one of the best ways to keep track of your finances. However, you’ll want to prepare an expenses budget when you start a small business. Doing so helps you determine your day-to-day operational costs. Then keep the amount readily available in your company’s bank account. Expenses you need to account for when creating a business budget include rent, utility costs, marketing expenses, insurance, office equipment and stationeries, salaries, and travel.
Balancing your personal and business finances is an important step to ensure you’re successful in your venture and overall lifestyle. However, to accomplish this goal, you need to manage your bank accounts correctly. It’s also crucial to have separate accounts for business and personal financial needs, buy commercial property for your venture, and create a business expenses budget.