If you have much experience with life and with business, you know quite well how true Murphy's Law is. "Anything that can go wrong, will go wrong." Quite often, problems seem to come in bunches, multiplying the pain and difficulties that they cause. Our business loses key customers at the same time there's an illness in the family. Our business needs some new equipment right as our personal car breaks down.
When that happens, we're in deep crunch time. Our personal finances are in desperate need right at the same time our business doesn't have a dime to spare. Something has to give - and usually, a bit of the business is sacrificed to keep our personal head above water.
Personal finance is a big part of successful small business finance. As a small business owner, the success of the business you've poured so much of your heart and soul into is often tied directly to the success you have in managing your own money. If you have stability in your personal finances, you have an added layer of stability in your business finances because you won't have the risk of needing to peel resources out of your business at an inopportune moment.
Here are some general guidelines to follow when it comes to managing your personal money in support of your business.
Don't carry high-interest consumer debt, especially credit card debt. If you're carrying significant high-interest consumer debt each month, you're putting yourself (and by extension your small business) at risk. Credit cards are a useful tool, but like any useful tool, they can be dangerous if wielded incorrectly. If you're consistently unable to pay your credit card bills in full each month, it's time to cut back on some of the high-spending areas of your personal life until you eliminate that debt.
Don't treat your business as your emergency fund. I know far too many businesspeople who do this. They view their small business as a liquid asset that can be drawn upon in a pinch in their personal life. Instead of looking at your business as a savings account, look at it more like an annuity. It pays you cash regularly, but there are huge penalties if you try to withdraw that cash at other times.
Instead, build up a personal emergency fund in cash. Keep it in a personal savings account, distinct from your business. When a crisis happens in your personal life, cover the crisis out of your personal emergency fund. This way, your car issues or your new hot water heater doesn't have a chance to alter the state of your business.
Look for ways to reduce your personal spending without altering your lifestyle - but don't start spending that money you save. Quite often, people hear advice about getting a personal emergency fund and they ignore it. After all, they're already spending everything they earn, so how can they possibly get an emergency fund going?
The best way to do this is to look for seamless ways to reduce your personal spending, then directly and automatically transfer that money into a savings account (or into an extra credit card payment) so that you don't spend it immediately.
For example, if you install a programmable thermostat in your home and discover that it reduces your home energy bill by $30 a month, set up an automatic transfer from your checking to your savings account that transfers $30 each month.
If you spend a weekend air-sealing and insulating your home and trim your energy bill by another $30 each month, make that automatic transfer $60 a month.
Convince a few friends to have a weekly potluck dinner hosted on a rotating basis instead of eating out and you might save $30 a month on food - making your monthly transfer $90 a month.
Give up those three sodas each day or those three cups of coffee in the morning and you'll save another $30 a month, so your transfer is now $120 a month.
Hold off on upgrading that car that just went off payments for another year - you can live with it just fine. Instead, channel the $300 a month you were paying on the car payment into your savings account - and do it automatically.
There are countless little (and big) changes you can make in your life without disrupting your daily flow. These little changes make a big difference when you actually save that money instead of spending it on something else. That money can free you from personal debt and save you in a time of crisis - both of which can help protect the finances of your business.