Owning a business is a great way to build your wealth. It is a big risk, with huge benefits. It’s harder to budget when you don’t make the same amount of money each month, but if your paychecks aren’t regular or you have no employer withholding your tax contributions, budgeting and financial planning get a little more complex.
From saving money for taxes to ensuring your retirement needs are met, here are four steps to money management if you are self-employed.
1. Have a financial safety net
A high percentage of new businesses fail within the first two years and at the other end of the spectrum, older businesses can fail due to changes in markets and technologies. Reduce your financial risk by holding some of your wealth outside your business. In the worst case scenario, you will have financial assets to rebuild from.
2. Separate business and personal money
Small business owners often make the mistake of mingling their business income and expenses with personal income and expenses, making it difficult to monitor performance. One of the keys to successful business management is keeping a close eye on the cash flow and the performance of the business.
3. Pay yourself a regular amount
To successfully manage your personal finances it helps to have certainty about what your income is. Paying yourself a fixed amount on a regular basis from your business will make this easier. Adjust the amount up or down after a period of time if your average business income changes.
4. Have a clear strategy
From the day you start your business, your plan should be to maximize the price it can be sold for. You will need a clear plan of how you are going to add value to the sale price and how or to whom it might be sold.
What money tips do you have? Let us know in the comments, or send us a tweet. We’d love to hear from you!