Personal Finance Tactics From the Pros: How to Apply it to Your Growing Business

August 16, 2016


Do you remember the first dollar you ever earned and the excitement that came along with dropping it into your piggy bank? From that very moment, you had a hand at managing your personal finances. Fast-forward to today, you now own a business and find yourself in a complete bind when managing your business’ cash flow. The truth is, much of what you learned through your personal finances can be applied today as a business owner. And many entrepreneurs start out on a shoestring budget simply because they don’t have the funds to splurge. Typically, in the early stages, they learn the basics of business finance by trial and error or until they establish enough entrepreneurial chops to hire a pro to assist.

Now, name a personal finance guru: Dave Ramsey, Suze Orman, Jean Chatzky, Liz Weston, Farnoosh Torabi and Robert Kiyosaki. They’re just a few notable individuals who share financial advice on everything from saving to investing to managing debt. So while your business is still in its infancy, it may be worthwhile to apply the wisdom of these personal finance titans to the operations of your small business.

Personal Finance Tactic 1: Set A Budget

I give out similar advice all the time: take a month to write down where your money is going. By the end, you’ll have a roadmap that tells you where you can cut back. – Jean Chatzky

How it applies to business:

Budgets can be difficult to plan and even more complicated to maintain, but you need to create one to run your business and to expect to stay on track. At the most basic level, a budget allows you to project your income and manage your expenses month-to-month. Also by having one, you’re able to better prepare for unexpected events (like cash flow problems).

If an important client decides to reduce the amount of business they do with you, your first reaction would be to review the budget. Because of this unexpected situation, do you need to reduce inventory or labor costs in response? Can you cut costs elsewhere to ensure you weather the immediate loss of revenue?

On the other hand, what if a shiny opportunity to expand your business comes your way? If that opportunity requires a chunky investment, having a budget can help you determine if it’s both affordable and ideal for your business. Remember, budgets aren’t a pass/fail test. They’re a benchmark to help you manage costs, determine whether your profit goals are within reach and execute adjustments when needed.

Related: 9 Ways I Started My Business on a Shoestring

Personal Finance Tactic 2: Establish an Emergency Fund

“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” – Suze Orman

How it applies to business:

What if your largest client goes out of business? What if you have new competition that cuts into your revenues? What if you didn’t have to worry about these scenarios because you have an emergency fund to back you up?

Some businesses are seasonal and some industries are unpredictable. However, maintaining good accounting and budgeting can help even the most unpredictable businesses forecast their cash flow in preparation for the downtimes.

How much you save depends on what’s left after your expenses are deducted, but most experts recommend to put between three months and one year’s worth of expenses towards an emergency fund. If that number seems insurmountable right now, start with a one-month savings net and keep increasing as you go.

Remember, don’t ride the stock market with these funds. The goal is for the money to be there, liquid and available when you need it. Consider putting your emergency fund into money market funds, a savings account or short-term Certificates of Deposit. In this economy, you won’t earn much interest, but interest is not the goal—liquidity is.

Personal Finance Tactic 3: Pay Yourself First

“Don’t save what is left after spending; spend what is left after saving.” – Warren Buffett

How it applies to business:

During the startup phase, many small business owners sacrifice their own salaries to get their operations up and running. But even if you have enough personal savings to handle that loss of income, foregoing your own salary isn’t a smart move. When drawing up your business plan, consider how much you’ll pay yourself from day one. This way, you’ll have an accurate portrayal of how much capital you’ll need to finance your business.

Now, landing on a dollar-figure for your own salary is a tough call. At first, you might pay yourself just enough to meet your basic living requirements, then increase your salary after you reach the break-even point.

Remember, though, that even if you are willing and able to accept a temporary drop in income, paying yourself far less than you are worth paints an unrealistic picture of the viability of your business—for both yourself and any investors you hope to appeal to now or in the future.

Personal Finance Tactic 4: Be Wary of Debt

“Good debt is a powerful tool, but bad debt can kill you.” – Robert Kiyosaki

How it applies to business:

The Great Recession sparked a wave of bankruptcies, including some bigger than the US courts had ever seen. In many cases, those bankruptcies could have been avoided if companies weren’t already saddled with debt as the recession crippled their earnings power.

You’ll find that credit card promotions start arriving in the mail almost as soon as you register your small business. As a result, most businesses rely on debt to get started or see through more lean times. However, if debt keeps piling up, it’s time to revisit the company’s budget. Did you purchase real estate or finance a large piece of rarely-used equipment? Perhaps you’d be better off selling the asset and renting to cover short-term needs.

If you’ve personally guaranteed any loans, make paying off those debts a priority. A personal guarantee means the creditors can come after your personal assets if you are in default. If the worst happens, not only does the business go bankrupt, but you could find your personal finances in shambles as well.

Personal Finance Tactic 5: Stay Insured

“Your greatest asset is your paycheck. Disability insurance protects you and your family if you are unable to work by providing income which will help you pay your bills and take care of your family. It’s just as important as life insurance.”  – Dave Ramsey

How it applies to business:

Without disability insurance, one bad accident can sink your personal finances. Businesses need insurance for the same reason. Certain risks expose your business—everything from lawsuits to catastrophic events. Without insurance, your business could be wiped out before you have a chance to get it off the ground.

Fortunately, businesses have access to a wide range of insurance policies to protect against such threats. Professional liability insurance covers negligence claims. Property insurance covers equipment, inventory and real estate. Product liability protects businesses from claims that their products are unsafe.

Many entrepreneurs start out small with a home-based business, but most homeowner’s insurance policies don’t cover home-based businesses in the way commercial insurance does. Talk to your insurance agent about any additional coverage you’ll need to protect your business.

Remember, running your personal finances is a small enterprise in itself. We have to watch our bottom dollar, set goals and change course when things don’t work out. By applying these principles to your small business, you can start your business on firm financial footing and avoid some of the pitfalls that derail many new entrepreneurs.

Related: Hobby or Business? Why it Matters to Know the Difference


about the author

Freelance Contributor Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction and binge-watching Real Housewives.