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Balancing personal, business finances as an entrepreneur

Experts advise that it usually takes years to turn your business into a self-sufficient money spinner that can sustain an expensive lifestyle.
Experts advise that it usually takes years to turn your business into a self-sufficient money spinner that can sustain an expensive lifestyle.
Image: 123rf\Wavebreak Media Ltd

Being an entrepreneur is often considered an extreme but lonely sport with no certainty of success or even a salary at the end of the month. However, small businesses are essential to grow the economy.

“We recognise the importance of entrepreneurship and the role it can play to address poverty, inequality and unemployment,” Lindiwe Zulu, minister of small business development, said last week at the launch of the Global Entrepreneurship Week.

What is encouraging is that entrepreneurial activity is on the up, hitting five-year highs in 2017/18, according to a report by The Global Entrepreneurship Monitor. But to turn that activity to a sustainable business that make a real dent in unemployment, entrepreneurs must grow their enterprise to make an annual turnover of R2m or more. This means striking the perfect balance in your personal and business finances from the word go.

“Entrepreneurs need to make a commitment to learning all aspects of personal and business finances every day. They have to accept that the business’ money is not theirs unless it’s in the form of dividends or a salary withdrawal,” Nicolette Mashile, founder of Financial Fitness Bunny, says.

The commitment has to come before you even get your business operational by building up financial reserves while you still have a full-time job. This is the first step in ensuring your personal and business finances don’t overlap.

“Reserves is basically the amount of money you will need each month to pay your bond, utilities, school fees and any other living expense or financial commitment. We advise that you have reserves of at least 6 to 12 mounts if possible,” Christo Olwagen of Business Doctors Bryanston explains.

Once you are ready to get your business operational you need to make sure to separate your personal and business bank accounts as you are now responsible for the finances of two people – your own finances and those of the juristic person or business you have created.

Nevertheless, effectively managing your personal and business finances goes deeper than simply building up financial buffers and different bank accounts. Your habits around the handling of money also goes a long way.

You need to intentionally work on becoming better at financial management by:

Making an effort to keep expenses below your income in both your personal and business finances. Expenses rise to meet income, so ensure to always give yourself a safety net by living and operating the business below your means;

Automating your bill payments to avoid missed payments and collection agencies. Automating your bill payments allows you to set up specific rules for each bill and alerts for expectations allowing you to put your bills on auto pilot and focus on your business;

Planning for rainy days or even months which you will inevitably face. Expect to deal with irregular income and plan for leaner times. Ensuring that your personal and business finances are in order will also make it easier for you to access credit should you need it in the future;

Negotiating everything by constantly engaging with your stakeholders to renegotiate better terms for your business; you can make the renegotiation a once-per-annum affair;

Taking your business out on a money date once a quarter to assess whether you are still within your financial goals and budget. It’s also the perfect opportunity to reflect on your accomplishments, where your business is now and where it’s headed;

Planning for your financial future by insuring your business’ biggest asset – you. Your ability to generate an income is your security so ensure you have risk cover like life insurance and still put aside for your retirement even on a fluctuating income; and

Diversifying your finances and investments in case your business venture does not succeed. Diversifying gives you breathing room should things not go the way you anticipated.

Olwagen says what is important to remember is that you need to spend as little as possible in your personal capacity for at least the first two to four years of business. Although we’d like to think being an entrepreneur will make you rich quickly, the reality is that it takes years to turn a business into a self-sufficient money spinner .

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