Small Biz Finance Is Personal

Personal Finance Is Business Finance

tangleYour small business is your livelihood or a major part of it. Your personal life is intertwined with it in almost every way. So when you’re concerned about business finance you are also concerned about your personal finance. I’m not talking to the people who have access to angel and venture funding. Those small businesses handle finances in an entirely different way than many of the grass-roots small businesses.

Let’s focus on post startup of a business. After launch you are operating the company and you have to hit payroll every month. You have vendors to pay and all the operational costs. Rarely does a small business have the luxury of consistent revenue. Frequent strategies are credit card borrowing, floating vendor payments, deferring personal pay, pushing and incenting¬†collections and other creative approaches. Most of the time the approach involves either direct sacrifice or personal risk.

Personal Finance Tips

tipsIt’s worth visiting personal finance tips to help you to have a good view of your ability to respond to these business fluctuations. Trent from the simple dollar has developed five simple ways to manage your personal finances. I’d like to visit some of the cards here starting with ‘Spend Less Than You Earn’. I completely agree with the idea and concept but I think as advice it might be more instructive to provide a day-to-day means of doing it. Social Economists have been studying human behaviors in investing and spending. It seems that we function more like a herd than an individual and this is true for both types. In the case of spending we have our greatest satisfaction when we feel at an advantage compared to our neighbors.

In a like manner if you are not spending like your neighbors you likely feel a bit deprived. When we look at the average US savings rate as a measure of how well we respond to the gap between income and spending it looks pretty bleak. One suggestion is to adjust your ‘neighbors’. This could literally mean moving to a more modest home or hang out with people that are less consumer oriented. This will reduce pressure on your own spending and allow you go keep a good gap. Now just have a quarterly check on our income vs¬†spending gap and make small adjustments to increase it in a favorable way.

Earn More But Keep Your Eye On The Ball

OnballTrent’s touches on more long-term personal investment. As a small business owner how you handle this depends upon where you are in the cycle and development of your business. If you have just started the company investing in new education may destroy the business because you took your eye off the ball. Of course starting a side business is not a good strategy but starting some side services and products that complement what you do may be exactly the idea you need. If I translate the rest of his ideas here then I would include:

  • Stay with your core strengths
  • Keep good customer service
  • Continually keep up with your clients

Keep Expenses Low

limboOn Smallbizmodo I am always advocating going to the free and inexpensive solutions. The reason for this is that you have many services, products and expenses. Small amounts, especially recurring charges, add up and it usually adds up to additional stress for the business. There is a tradeoff and the cheapest solution can cost you more. It can cost you revenue or lots of time and if your time is what brings in money then you need to guard it jealously. The best way to do that is to minimize the time it takes to handle routine non-revenue generating tasks. Outsourcing is a good idea for a lot of these tasks.

Manage Your Cash Flow

cashflowHere there may be the biggest divergence between Personal and Small Business. In personal finance your income tends to be consistent over yearly horizon. Your business may grow dramatically but your income may stay the same because all the earning increases are plowed back in as an investment to your business. This is not a bad idea to keep a lower maintenance income so when you do take a hit to revenue you are able to handle the declines personally.

From a business perspective you plan for growth. If you continue your spending in a fixed manner you can create a customer satisfaction problem. As business grows, expenses often grow via hiring more support people and many other fixed cost investments. Plan for the growth, implement a plan to respond to it and then measure. Plans rarely work exactly and your investments need to rise and fall according the data.

Balance Business Risks

balancingactThe scariest part of business is when you have to invest ahead of the revenue. The difference between a successful business and a failed one is the ability to manage this risk. You can’t be completely safe and grow your business and if you are too reckless then it will be a spectacular flame out.

I recall working for startups in the late 1990s before the tech crash of  2001. The philosophy was spend a lot of money and not only was it not necessary to have revenue but somehow it was actually a detriment to have it. I struggled and could not bring myself to hire large numbers of people and spend money wantonly. I remember one person submitting expense reports for a cell phone bill of $10,000. At that time I thought maybe my inability to do such things meant I needed to go back to the farm.


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