If there’s anything worse than managing your personal finances, it’s dieting. In the end, though, they are not that different.
Think of your body as a bank account. Calories (money) in makes for a fatter bank account. Calories (money) out makes for a skinnier bank account.
If you are trying to grow wealth then you need to earn more than you spend just as if you eat more calories then you spend you will grow fat (or muscle!).
The main difference, really, is that most people want fat bank accounts and skinny butts.
This post is about taking the necessary steps for managing your personal finances for business success. You will have to seek out a diet blog or use this app to get a skinny butt.
Managing Your Personal Finances to Achieve Business Success
As a mompreneur or solopreneur, your personal finances can get confused with your business finances. In order to be successful, you must manage each of them as if they were completely separate even if right now you are bankrolling your business instead of your business bankrolling you!
No matter how you look at it, you need to have healthy personal finances in order to achieve business success.
Start by asking yourself this question:
Why am I in business?
The answer is: to make money.
I know, I know. Some people are all about money and other people think money is kind of vulgar. And you may have other reasons you love being in business, which might include:
- Passion for your chosen career
- A thirst for social justice
- Love of working with people
- Unbounded creativity
Those are all more or less valid reasons to work and have a career. If, however, you are not in it for the money, then it’s called a hobby.
Hobbies are good. I wish I had more time for mine. But hobbies are not businesses.
So let’s get clear and let’s get cookin’.
This post will explain 5 steps involved in managing your personal finances in order to make money for business success.
Step #1: The Money Mindset
As a yoga teacher and stay-at-home mom, I worried about money but I did not really think about making money.
I taught yoga part time and getting a little extra cash was incidental to me.
When I got my divorce, I didn’t have a money mindset and it took me a long time to get one.
When I was casting around for a career to support my new family structure, it became apparent than teaching yoga — at least the way I wanted to teach it — wasn’t a road to the six figure income I needed to support two children going to private school in San Francisco.
Your financial needs may be different than mine and, frankly, I hope they are. The less money you need, the more free time you have. And, at the end of the day, I still value time over money.
If, however, you are in the business of supporting yourself and/or a family, you need to be thinking about money.
The take home: Learn to value wealth creation.
Step #2: Apply Common Sense Money Management Tips
Here are some tips to help you manage your personal finances:
- Record your daily expenses. That’s right. Take a few weeks to see what you are spending on. This will help you reduce any unnecessary or excessive expenses down the line.
- Get real. This is also called budgeting. I have been tracking my finances for years using tools like Quicken, so I have a pretty good idea of where my money goes and how much I need to make things work. Budgets are usually about what you think you should spend and not what you realistically do spend.
- Set goals. Now that you know how much you need, set a goal to make it. If you end up not enjoying making money, you can start spending less. In fact, when you see what’s involved with earning money, you will probably be happy to spend less.
- Set up a business account. Set up a business account and a system for separating out business expenses from personal expenses. Come tax time, you will need to know the difference.
- Avoid debt. Unless you are getting financing for your business, I strongly suggest you avoid debt. It is intensely stressful and will make it so that your bank account stays skinnier longer while stress-induced binge eating will make your butt fatter.
Step #3: Understand The Difference Between Bookkeeping and Accounting
Bookkeeping is the recording of financial transactions, usually income and expenses.
Accounting is the more complex art and science of applying information about income and expenses to the various accounts you, as a business owner and/or individual, have and using that information to develop the financial statements that explain the health of your business.
Step #4: Set Up a System
You need a system to manage your finances. Here are the basic elements:
- Choose accounting software or hire a bookkeeper and an accountant. There are many, many free and paid cloud and software based accounting solutions. Shop around and then make your choice. You can also use a spreadsheet.
- Create a chart of accounts. List assets, liabilities, equity, income and expenses. If you choose to use a spreadsheet, you will need a chart of accounts.
- Choose an accounting method. The choices are cash and accrual. The cash method makes sense for most small businesses which means you record your income when received and expenses when paid. The accrual method means that you record your income when earned and your expenses when incurred. I say use the cash method because it will help you stay in reality. But, if your business carries inventory, earns a lot of money or is complex, you may need to use the accrual method.
- Record your transactions. Pick a time each week and do it. I like Money Mondays or Finance Fridays.
- Understand your business’s financial health. Are you getting fatter or skinnier? To understand your true financial picture, you will create regular (quarterly is a good idea) financial statements. These consist of a balance sheet and income statement.
Step #5: Make Your Finances Client Friendly
Now that you have an accounting system in place, you will need a system for interacting with clients. At a minimum you need:
- Way(s) to accept payments. Most people are familiar with PayPal. You will probably choose to set up PayPal and link it to your business bank account. You can also use the Square and take payments on the go.
- An invoicing system. Many of the cloud and software based accounting solutions incorporate invoice templates and automatic invoicing. If you go the DIY route, you will need to create a template.
Pro tip: On your invoice, include a request for a testimonial and links to places online, such as your Google+ Business Page or Yelp profile, where clients can endorse your excellent service.
If this post made your head swim and you really don’t like numbers, it is a great idea to hire someone to help you either set up your system or run it entirely. If it bothers you to think that someone else will be managing your money, consider hiring someone to coach you on doing it yourself.
Whatever the solution you decide to use, remember this: managing your personal finances and having intimate knowledge of how you are doing financially is key to your business success.
Have you been successful managing your personal finances for business success? Give us your tips in the comments.
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