An indispensable part of any business, big or small, is financial management. As a sound entrepreneur, you must have a deeper understanding of your financial management to grow a successful business. But contrary to what most people think, financial management is much more than simply taking care of the business’ bookkeeping and balancing the checking account.
It’s also important for entrepreneurs to develop smart money habits that would not only help you build personal wealth, but also give your business a boost. And with this in mind, we’ve listed some proven money habits that all entrepreneurs should have to improve their financial management.
Keep Building Your Network
You’ve no doubt heard it countless times: network, network, network! But successful entrepreneurs don’t just build their network by going to business retreats, collaboration events, or even cocktail parties. They do imply networking. But what does implied networking means? Effectively, it means cutting great deals and forming business relationships with clients. It might not be financially profitable now, but good connections and relationships can lead to long-term loyalty and sustainability. Ultimately, the more you network, the more opportunities will come your way that would help you get access to funding, attain growth, and increase profits for your business. As such, it’s beneficial to always keep in mind that some clients may be potential business partners.
Have a Savings Mindset
As an entrepreneur, you know that you need to spend money to make money, but saving is just as important for your business. Saving effectively will help you build capital and grow your business. It can also help you take care of your needs when things go south. Initially, having a financial backup equivalent to six months of earnings is usually recommended.
A simple way to develop saving habits is by automating the process. Review your monthly business budget, and estimate how much you could regularly set aside for savings. You might only set aside as little as 5% of your income at the beginning. The amount doesn’t matter, as long as you are saving on a consistent basis.
Separate Personal and Business Finances
Another habit that you should develop is keeping your personal and business income separate at all times. This will help ensure that you treat your business like the independent entity that it is, and also eliminate any situations whereby you withdraw money from the business accounts for personal use.
One surefire way to do this is to establish your business as its own legal entity. Creating a limited liability company, instead of going down the default route of a sole proprietorship, lets you separate your personal assets from your business ones. This provides you and your personal finances liability protection should anything go wrong in your business, while also opening the door for more credit opportunities for your business.
You also may research a small business credit card that can provide such benefits as cash back or points. Personally, I will make sure that I pay off the balance of the credit card each month to save on interest fees.
Know Your Liabilities and Responsibilities
To become a successful entrepreneur you must also know every single one of your business liabilities and responsibilities. A smart entrepreneur is one that understands that he or she can be sued if liabilities aren’t met. And every business, at one point or another, will have financial liability. That’s why it’s imperative that you know what you could be liable for at any given time, and how you can get yourself out of any legal issues as quickly as possible. An example of an often overlooked liability for starting entrepreneurs is a company retirement plan. There have been lots of lawsuits against companies because they’ve mismanaged their employees’ 401(k). Other examples when it comes to business liabilities that you should take note of include interest payable and dividends payable liabilities.
Investing for Business Growth
Investing is an important part of creating a business and eventually expansion. Finding ways to invest the profits back into the company is also key to stimulating further growth. Putting money into solid investments that will grow year after year will give you peace of mind, and stability for your business. It will also ensure that your business’ profits are secure and are growing, even without new clients. An easy way to develop investing habits is by treating it like a bill, and putting in in the list of your monthly bills.
Being an entrepreneur is exciting and overwhelming at the same time, but adopting these five businesses and personal money habits will help you on your way to success. There are many other ways to better financial management. What’s important is establishing and knowing what your goals are, and sticking to smart financial habits.
