Top 5 personal finance tips for entrepreneurs and small business owners

Dr Biz • January 18, 2021

Personal finance tips are useful for anyone, but they are particularly useful for entrepreneurs and small business owners. In the often frenetic madness of running a small business, personal finances can get left behind, which can lead to a nasty shock when busy business owners finally get round to checking their bank statements!

Managing your own money is just as important as balancing the company books, though. Indeed the two things are often intertwined, especially if you find yourself having to dip-in to company funds to fill a personal financial hole. To avoid this, entrepreneurs and business owners need only implement some simple personal finance hygiene, which we set-out below.

1. Separate your funds

The foundation of good financial practice for those running a small business is to ensure there is a clear line placed between personal and business funds. This is especially the case for entrepreneurs and self-employed freelancers, for whom business and personal expenses can become muddled.

To start, make sure you have separate bank accounts for business and personal spending and don’t mix the two. Also be sure to use your business account for any expenses you will later claim for under your annual tax return. This will also help to compile expenses, which can be arduous if they are spread across different accounts,

2. Understand your expenditure

Knowing how much you need every month for living expenses is key to ensuring you don’t dip into business money. To find this out, sit down and compile a budget of key expenses like housing and utility bills and then discretionary spending. Once you have a figure, you can transfer this from your business income account every month or quarter, as suits.

If you have a registered company, however, be sure to work with your accountant to discuss how you take your business profits as income. This is because the way you take income from your business can have tax implications, and you should make sure you are doing this as efficiently as possible. If you need help and advice on tax, feel free to get in touch with Dr Biz!

3. Budget effectively

As well as understanding your own personal expenditure, you should also try to get a clear picture of your business expenses to help ensure you have enough to cover your overheads for both. Costs related to business premises such as rent and equipment, as well as purchase ordering, staffing and paying for service providers are all key considerations.

Once you have done this you will know the level business income you need to target and then what you need to do to generate this income, including the amount of product you need to sell or clients you need to serve. This will help to ensure that you are generating enough income to cover business costs while also paying yourself the personal income you need every month.

4. Build a solid savings pot

Of course, things don’t always go quite so smoothly when running a business. In-fact, the majority of new businesses typically take a year or two to turn a profit and establish steady flows of income. And so, if you are a new business, you should have a pool of savings built up that you can dip into for your personal expenses while you are getting on your feet.

Even if your business has been around for a while, though, you should still make sure you have a good pot of savings ready for when times get tough. As recent events have shown, things can come up that even the strongest businesses might struggle to endure. At these times, a solid savings pot will help to make sure you have enough to cover your own living expenses.

5. Think about your future

Filled with enthusiasm and drive for their business ventures, entrepreneurs and small business owners can often forget to think about their own long-term futures. This is especially true when it comes to retirement, with many often assuming they can rely on their businesses to look after them in their old age.

While this will be true for some, as highlighted above, things don’t always go to plan, and so establishing a pension plan of some sort is usually a good idea. This might take the form of a stakeholder pension with an insurer, or a long term investment portfolio you manage yourself. Whichever you choose, make sure there is enough to fund the kind of retirement that a hard-working business owner deserves when she finally kicks back to relax and enjoy the final fruits of her labour.

At Dr Biz, we provide tailored and comprehensive solutions for our client's business needs. From incorporation to accountancy, tax and payroll, to professional advisory services, we help businesses in Singapore assess potential risks and become more cost effective and efficient.

To find out more, please feel free to contact us.

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