Entrepreneurs And Personal Finance – How to Stay Organized
Originally published in KillerStartups.
We talk a lot about managing cash flow if you start a new business, but less about managing your own finances while you do that! How do you keep your personal finances (and cash flow) organized?
The following answers are provided by the Young Entrepreneur Council (YEC), an invitation-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
1. Keep ‘Em Separate
It is essential that you keep your personal finances and business finances completely separate. Do not commingle! Make sure you are paying yourself a salary (rather than paying your personal bills) out of the business finances as soon as possible. Use software like Mint.com (www.mint.com) to keep track of your personal funds and net worth, the same way you use QuickBooks (www.quickbooks.intuit.com) to manage company funds.
— Rachel Rodgers, Rachel Rodgers Law Office
2. Manage Your Personal Cash Flow Like Your Business Cash Flow
The key to managing your personal finances is the same as for managing your business finances: Create a financial forecast. You need to understand your expenses, your cash burn, your potential cash inflows and potential unexpected expenditures. Figure out where you will get money for your personal account and how you can maximize your personal revenue stream. Then, do the same for your business!
— David Ehrenberg, Early Growth Financial Services
3. Become a C Corp
I know everyone loves the LLC, but the LLC can get you in a lot of trouble. You get taxed as an individual on what the corporation makes for the year, which really penalizes you personally and can lead to a huge tax liability that you are personally responsible for. With a C corp, the business is a separate entity, meaning the business manages its finances and you manage yours. It forces you to!
— Raoul Davis, Ascendant Group
4. Get Help
Managing finances is my background, and I still get help with it. My company team handles my business finances, while my wife helps handle our personal finances. Having outside help allows me to have an unbiased view of my finances and be smart about them. I ask questions and discuss issues as they come up, rather than being bogged down in an echo chamber of my own voice.
— W. Michael Hsu, DeepSky
5. Track All Your Personal Expenses
For my first year in business, I created a Google Doc and tracked all expenses—yes, even when I purchased an apple for 75 cents. This discipline made me aware of what I was spending and helped me create a daily budget. I knew how much cash I had in the bank and assumed the company would not pay me, so I created a “personal burn rate” and was religious about matching my spending to my goal.
— Aaron Schwartz, Modify Watches
6. Schedule Monthly Family Budget Meetings
My wife and I meet on the first of each month to analyze the month prior and budget for the month ahead. In these meetings, we determine our budgets for all spending categories and forecast each of our variable incomes. This way, we reach our financial goals and remain transparent with each other. Money can be a pain point for many families, but you can avoid problems by carrying this out.
— Logan Lenz, Endagon
7. Keep It Simple
Mint.com (www.mint.com) is an excellent, free service to manage your personal finances. Simply sign up, link up your bank accounts, set monthly budgets for various spending categories and log in weekly or bi-weekly to ensure you are staying within your means. Mint.com syncs up with your linked accounts and can also be used to set savings goals, track your personal investments and find ways to save more money.
— Fehzan Ali, Adscend Media LLC
8. Make Regular Reviews
Every month isn’t enough! Nearly every week (or maybe more), I’m checking in on both my personal and business finances—cash flow is king!
— Derek Flanzraich, Greatist
9. Manage Finances the Old-School Way
I find that doing finances both tediously and manually makes budgeting much more real and powerful. Every month, I copy and paste every expense from my bank account and categorize it into an Excel spreadsheet. Each time I copy and paste something, I have to mentally confront that expense. Doing this manually is a great mental exercise that gives you a stronger financial sense about yourself.
— Brett Farmiloe, Markitors
10. Calculate Cash Flow With Excel
Every month, go through and calculate your cash flow in Excel to see the sources of cash bleed, and then try to weed them out. It’s also helpful to try and project cash flows for the rest of the year to make sure any anticipated negative cash flow can be funded properly.
— Josh Weiss, Bluegala
11. Buy Accounting Software
When starting your own business, the lines of separation between your business and personal finances can often get blurred. A great way to ensure this doesn’t happen is to keep your business finances clean and orderly by investing in accounting software. This will ultimately keep your personal finances just as organized.
— Zach Cutler, Cutler Group
How do you manage your personal finances? Tell us about it in the comments section below or contact Early Growth Financial Services for a free 30 minute financial consultation.
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