8 Personal Finance Tips for Start-up Entrepreneurs

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Majority of the personal finance information and guidance out there doesn’t apply to more than half of us that seek self-employment rather than traditional employment. As entrepreneurs, we face a different set of challenges and responsibilities that require more tailored financial advice to build personal wealth and reach financial security. Afterall, with no money, you’ve got no business.

In my experience running my own business and advising other entrepreneurs, I’ve seen first hand the change entrepreneurs face trying to balance personal life and wealth, while still achieving goals independent from the companies they run. It is important to recognize that since a majority of your net worth and compensation is wrapped up in the success of your business, finance becomes the most important aspect of becoming successful as a business owner.

Therefore, to help the growing group of budding entrepreneurs, I’ve compiled some personal finance tips for young moguls and here they are:

Have A Rainy Day Fund

As a business owner, having robust cash reserves stashed in money market instruments can go along way in preventing your company from having to sell more illiquid securities or investments – possibly at a loss – to raise cash to meet short-term obligations like repaying loans, bills or wages. Irregular income is a norm in business, It is quite common to find entrepreneurs selling their cars, furniture or even giving up prime office space when cash-strapped.

Therefore, it is important to budget around cash shortfalls and having a cash cushion or emergency fund to prevent setbacks. This goes for both your personal finances and business finances. Such a cushion would smooth out operations and ensure that your business moves from season to season, without major setbacks that can affect its very success.

Going Forward: Purchase securities on the money markets to set aside funds that cater for one year worth of personal and business expenses.

Separate Personal From Business

It is always a good idea to keep your business and personal funds separate. This gives your business more credibility and a sense of legitimacy. Even though, as you start up you’ll have money moving from your own personal account paying people, borrowing on your own credit and so on, keeping things separate will help you to keep things organized when paying taxes, managing bills and reducing your exposure to business liability.

Going Forward: Have separate business accounts and try as much as you can to separate all your business and personal transactions.

Cut Your Cost of Living

Expenditure rises to meet income’ – a derivative of the Parkinson’s law. From this, we can safely conclude that financial independence comes from violating this law. This law simply explains why some people end up broke. How they keep falling into the same trap. You ought to develop the willpower to resist the urge to spend everything you make. This way you can accumulate wealth and move ahead of the pack. Well, that is the gist of it.

As a young entrepreneur, get into the habit of trimming expenses and keeping them well below income. Make this a deliberate and conscious effort. Therefore, in the future even with more money coming in, you can easily build up your net worth to a point that even with a little splurge, your bottom line will not be affected.

Going Forward: Spend less than you earn.

Get Help From Friends & Family

Solicit help and leverage your family and friends. As you start out, you might find yourself in need of money every now and then. Family and friends can be of great help during these times. Make sure you document all loans and set clear expectations. Keep things simple i.e. capital structures – ensure that they understand. Also, ensure that you address basic questions such as:

  • Will they recoup their investment, and when will that be?
  • Will they get their money back with interest?

Going Forward: Avoid oral agreements, document everything.

Don’t Give Away too Many Shares Too Early

Giving away too many shares early on dilutes your shares and shrinks your ownership percentage. Keep your position within the company concentrated by offering no more than 20-40% of ownership. This way, you can maintain some level of business autonomy and direction. Leaving you to focus on business growth, making a real change rather than looking after equity holders interests.

Going Forward: Retain 20 -40% of ownership within your company.

Consider Pausing Retirement Saving

This piece of advice is for only those truly cash-strapped and willing to make a wise gamble to push their business off the ground. Saving for retirement is considered a luxury in some circles during the start-up phase. Many entrepreneurs choose to pause retirement saving as they would rather reinvest every penny and reduce overexposure by taking out debt/equity lines to fund the business.

Going Forward: Make wise gambles and stretch your investments.

Maintain Your Books

From the very beginning strive to keep deliberate surveillance of company money and maintain thorough business records. There is nothing worse in business than failing because of growth. That is why ensuring that your business is on track, below/on budget and debts controlled, while still maximizing profitability is essential. Make time to reflect and keep track of your business income and expenditure. By reviewing the flow of money in your business, you will begin to notice trends that can guide the next move that can catapult you to success i.e deploying more capital in profitable areas and cutting back in others.

Going Foward: Stop and reflect!

Negotiate Everything

Last but not least, negotiate all your contracts. Make sure you get the best deals possible out of your banks, suppliers and others you regularly engage with. Do this regularly as the business environment is constantly changing and becoming even more competitive. This can only mean that you can get better rates and save more.

Going Foward: Keep costs low and save more.

Bottom Line

There you have it, my 8 personal finance tips for start-up entrepreneurs. These tips can help you build the business of your dreams. However, there are other things you can do as well such as paying yourself first, seeking out a professional financial and tax advisory services. All these things can amply make your journey through your start-up days a lot smoother and enjoyable. Be smart, be frugal and put money into things that add value.

If there is something I have missed out or you have an experience you’d like to share, let me know in the comments section!

Meanwhile, If you enjoyed this, you might also enjoy these posts on personal finance:

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.

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