Who among us hasn’t dreamed of quitting the nine to five and going into business for ourselves, doing what we love or what we can bring to our community? Starting your own small business can be an incredibly exciting, yet also highly demanding enterprise, and small business ownership is not without its own highly detailed set of financial skills to learn and master. Even if you’re not the entrepreneurial type, there are many lessons from the small business world that make great general rules to live by for managing your personal finances.
Even those who are successful in business may fail when it comes to their own finances. Too often these talented entrepreneurs concentrate so intensely on their business that they neglect their personal financial planning.
Today’s blog looks at a couple of ways to start being the boss of your budget, rather than the other way around.
Plan for the Unexpected
Every small business strives toward a steady, consistent flow of cash and inventory going in and out, day after day, growing over time. However, as business owners and experts will note, there’s no such thing as a completely predictable cash flow. A supplier might suddenly flake out, taking extra time to complete an order. Rent might go up. A viral success story might create a demand spike that sends your inventory management chain into a spin. Small businesses guard against these tidal shifts by having a detailed understanding of their cash flow metrics. This doesn’t just include the normal rate at which they consume capital (your “burn rate”,) but having enough foresight to know where to turn when something unexpected comes their way.
Know Your Assets
A business is built on its assets: the material and machinery that it uses to get things done. Technically, anything can be an asset, but some assets are more valuable than others. For instance, consider a realtor. They might invest in the purchase of a stylish new car to drive to showings in order to impress their clients and improve their image: it’s technically a business asset, but it will depreciate rapidly over time and eventually end up incurring more costs than it’s worth as a promotional tool.
Similarly, when we look at how we budget and spend money in the world of personal finance, some assets will be more valuable than others. If you are wary of eating into your budget in order to purchase something new, sit down and really think about how much return your investment will bring you. It can be enormously valuable to commit to a purchase that will have significant impact on your future financial health, but knowing the difference between a “real” and a “fake” asset is key to success.
Fail Forward, Get Faster
New small businesses face a daunting uphill climb. Many fail: most of these do so within the first year or two of operation. Learning how to “fail forward” and keep your entrepreneurial momentum going in the face of such odds has often been cited as the key to success for many established small business owners. Just know that when your financial situation looks dire, there is often a way forward given the right amount of work, some sacrifice, and a significant amount of help from many different contributors. With this knowledge in hand, you can be on your way to being in the business of financial health.