Personal Finance for Entrepreneurs

Photo by Fabian Blank - Piggy Bank on White Background | Personal Finance for Entrepreneurs

You guys know I often speak about pricing profitably for your business; however, I also think we need to discuss PERSONAL finance for entrepreneurs. There are ways it should and shouldn’t impact business decisions. I asked my friend / past mentee, Matt, who is a Certified Financial Planner (CFP) at Guiding Wealth, to help me out!

Keeping Personal and Business Finances Separate

Before we dive into his amazing insight, I want to give my two cents… If there is one piece of advice I want to give new entrepreneurs about money, it is the importance of keeping personal and business finances separate. Not only for the sake of legality and bookkeeping, but also for mindset and strategy. Let me explain!

For the past nine years, I’ve had inconsistent, entrepreneurial income. When I was young and had fewer expenses, it was easy for me to keep personal and business money separate. Now that I’m older, married, and have more responsibilities, that line has blurred more often than I’d like.

You know what I’m talking about if…

  • You’ve struggled to decide whether or not you wanted to invest in a program, tool, or equipment based on how much your groceries were going to cost that month.
  • You’ve consulted your spouse about a business purchase… even though they don’t work for / in your business.
  • You have allowed personal fears about money hold you back from investing in your business in big ways.

And there’s no shame in that. I’ve done everything I’ve listed above personally and then some! But if you’re going to be an entrepreneur and do big things, you HAVE to make business decisions analytically. You cannot allow things like your mortgage payment worries seep into your business strategy. The second that happens, your mind will stop being focused on what’s best for your empire and start thinking from a place of lack!

I know this isn’t easy when you’re first starting out – trust me! Income isn’t consistent. You don’t know where the next paycheck will come from. Hell, you don’t know how you’re going to afford soap let alone a coach, accountant, or the editing software you desperately need.

Because he’s a pro at personal finance for entrepreneurs, I’ll let Matt explain the backend of what’s going on in your life / business at this stage of the game and how to make the best decisions for both moving forward…

Personal Finance for Entrepreneurs | Tips from Matt Fizell (Certified Financial Planner at Guiding Wealth)

Business Finance Basics

“I have a few tips for those of you who are looking for help overcoming the unpredictability of business income…

When you’re running a business, it can be incredibility difficult to maintain separation between business and personal financial decisions because ultimately, the income you earn through your business will have to put bread on the table.

I commonly help clients visualize their flow of income, and learn how to prepare for lower income months, by thinking of their money in terms of buckets”

Keeping Personal and Business Finances Separate | Flow of Business Money from Revenue to Expenses to Net Income

Business Revenue – Business Expenses = Net Income

“You’ve been working hard to find clients who are willing to pay you for the incredible service / product you offer. This created your business revenue. From that, expenses (including taxes – your favorite Uncle wants his cut too) must be taken out. This results in your net income.”

Personal Finance Basics

“Your personal financial statement will have pretty much the same flow of income, but the buckets are labeled differently. This is essentially an illustration of what most people would refer to as a budget. The goal is for the bottom bucket to be a surplus so you can avoid using debt to fund everyday life.”

Keeping Personal and Business Finances Separate | Flow of Personal Money from Income to Living Expenses to Surplus / Savings or Deficit

“If a surplus is present, money can be set aside for a variety of priorities such as paying off existing debt, increasing your retirement savings, or other mid/long-term goals such as vacations or large purchases.”

Personal Finance for Entrepreneurs

“These are both simple concepts when you only have to worry about them as individual flows of income; however, they unfortunately depend on each other when you’re running a business.

Having a clear understanding of what your absolute minimum living expenses are is crucial. Having a phenomenal month, quarter, or year in business can quickly lead to unintentional budget growth. All of a sudden, our bank accounts have very large numbers in them, which is great! However, if that amount of revenue isn’t typical or you’ve unknowingly hit your cap, it could quickly lead to trouble. You could get yourself trapped in a situation that isn’t easy to get out of in a short period of time.

Depending on your personal situation, here’s what we usually suggest:

  • Create a personal checking account that receives your true financial needs (living expenses).
  • Then, create a separate account you don’t look at on a regular basis. This is where you’ll store remaining funds from a successful month or quarter of business.

You can see the graphic that depicts this below. Of course, we hope your income continues to come in at a high level. It’ll allow us to store more money away in our ‘Excess Net Income’ bucket. As a result, when you have a lean month of business revenue, you won’t struggle to pay your bills. Instead, you can draw from ‘Excess Net Income’ bucket to cover living expenses if the initial net income doesn’t cover it.”

Keeping Personal and Business Finances Separate | Overall Flow of Money from Business to Personal Savings | Personal Finance for Entrepreneurs made easy!

Good Money Habits

“Not overspending is all about fostering good habits and not allowing a good month to create a new spending habit. This is really important for business owners at any stage of the game.

Really, the key is to keep it as simple as possible. Running a business is enough work; it doesn’t need to be hard to keep track of where money is coming in and where it needs to go in order to live your best life. As you gain traction in your business, it will also allow you to maintain emotional separation between work and home. This will allow you to have clarity and confidence in continued business investments. Or, in the event of decreased business income, you’ll have a buffer.”

Final Financial Tips for Small Business Owners

Obviously, Matt has certification and extensive knowledge to back up his words! But what I found so interesting in all of this is that we’re giving the same advice…

  • Don’t allow your personal finances to get so stressful they impact your business decisions. My husband and I know that winter is a slower season for our businesses, so we create what we call a “squirrel fund” throughout the year. Squirrels save nuts. We save money.
  • If personal finances are stressing you out and influencing your biz decisions, you can get out of it by spending intelligently and minimizing your expenses.
  • Your business cannot flourish if you’re bringing your own emotional money baggage into it.

Now that we’ve successfully conveyed the importance of keeping personal and business finances separate, I want to break the rule ONE TIME…

As women, we are often incredibly intuitive. Everything we’ve stated above is true and helpful, but there is one instance in which personal emotions can be helpful in business money decisions… If you’ve already decided you want to invest in ________ (insert program, coach, employee, etc. here) to grow your business, allow your gut to guide you to the right person.

Otherwise, keep your business pants (yoga or otherwise) on and think about your investments objectively. If you feel like you’ve got a good grip on personal finance for entrepreneurs and need help with your time management, head to my recent blog about batch working. Or, if you want more personalized attention, consider snagging one of my limited 1:1 coaching spots!

  1. Ash says:

    Great Article! My business is less than a year old and while it is not my primary source of income right now, that is my ultimate goal. Learning good habits now will help me in the long run.

    • Cassie Schmidt says:

      Thanks, Ash! I’m so glad you found it helpful. I 100% agree – if you can lay a solid foundation, you’re going to be in amazing shape when your business is crushing it!

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