Over the course of our work with entrepreneurs and business owners, we discovered there’s often a lack of understanding about financial management matters. This important facet of business is required knowledge for the success of a business. If you don’t know how to manage finances, you’re lost.
Too many people spend far too much of their time and energy worrying, griping and fighting about money, which comes down to managing finances, and yet they don’t do much (if anything) to learn about it. I understand it may not be the most stimulating reading for you. However, it’s a necessary “evil.” It’s unfortunate that few have even spent a few hours reading a quality financial management book to help them. Believe me, unless you do something to learn about it, you won’t wake up one morning experiencing that “Aha!” moment that provides you with total clarity on how to solve your financial problems.
That’s what it’s all about. Understanding financial management is the key to controlling your money situation. Today, I’m going to give you a simple tip that will at least get you to the starting line – and we’ll cover that in just a minute. I want to make a point first.
Far too often I’m stunned by small business owners who handle financial management in their personal and business lives as though they were one and the same. There’s a vast difference between the two, and absolutely need to be treated that way.
Credit cards have become the bane of the today’s consumer. The average revolving debt per household now averages nearly $15,000. (Source: CreditCards.com) For the last several years, consumers have been doing everything they can to dump their revolving debt. The new “in” thing to do is “right-size” their debt load. Okay, that’s all well and good but you should read a previous post on Good Debt vs Bad Debt. Getting this right is important!
At certain times, the financial management strategy of using the same type of short term funding source can be the lifeblood for start ups and small businesses. In fact, credit cards are the most common source of financing for America’s small business owners. (Source: National Small Business Association)
Credit cards can fill a void in small business owners’ needs but that doesn’t mean they’re a safe haven. Using them to fill in lean times, such as off-season-downturns, or quick turnaround purchases is one thing, however relying on them so much that your debt continually increases, is another. And you never want to use them to pay for business losses. When profits fall, your debt climbs to unmanageable levels. Understanding these, and other, limitations means smarter financial management.
The greatest blunder of all is when a small business owner or entrepreneur uses a personal credit card to help fund expenses, purchases and occasional shortfalls. This is my point.
My number one tip for financial management for your small business is to always keep your personal and business transactions in completely separate accounts – never mix! Here are just a few important reasons why:
- You can properly keep track of your business expenses
- You have cleaner records for tax purposes
- Your personal and business credit histories will remain separate
Do you keep your personal and business purchases and expenses separate?
If you do, when did you learn that lesson? How has it helped?
If you don’t, when are you going to take care of that?