Personal finance is something that many Americans find stressful on its own. When you throw in an entire business, it can become even more of a headache. Yet that’s exactly what millions of Americans are dealing with. Experts say that roughly half of all small businesses are home-based businesses, which can range from something as complex as a liquidations and returns resale business to something as personal and self-driven as freelance graphic design.
If you’re among the millions of Americans running a small business out of your home, then you need to think carefully about your finances just about every day. Your working lifestyle blurs the boundaries that normally exist between company finances and personal ones. To survive, you’ll need to keep these two areas of finance straight while remembering how they can affect each other.
Divide and conquer
If you’re running a home business (and especially if you’re a sole proprietor), you may not have any real distinction between your business’s finances and your own. But you should strongly consider putting up financial and legal barriers between the two.
Setting up your business as an LLC or a corporation can have big advantages, including tax savings. And separating your personal finances from your business ones can protect you if things ever go wrong for your business. You’ve probably heard of rich people’s businesses going bankrupt, despite those rich people staying rich. You don’t want bankruptcy in either place, but if it has to be one of the two, you sure don’t want it to be you.
Keeping your business lean
When we’re trying hard to improve our business’ earnings, it’s easy to get caught up in the flashy side of the equation: We want to bring more and more money in.
But, of course, two elements determine your profits. One is income, and the other is expenses. And you need to be careful to consider those.
Let’s say you’re running a liquidations and returns business. In that line of work, the idea is to get products on the cheap by snapping up returns and liquidations pallets from big retail operations like Walmart or Amazon via trustworthy liquidations and returns auction sites. But there are a lot of ways to save during and after liquidation auctions. The more you know about the type of products that you’re selling, the more sure you can be of getting good deals. The more time you spend checking and double-checking shipping rates, the less you’ll spend to mail your goods to your customers. And how much are you paying for all of the little things that make your business run, from internet service to boxes and packaging tape? For that matter, are you remembering to deduct all of those things on your taxes?
These same ideas apply to other types of small businesses, too. The more you save, the more of your income will be profit.
Overcoming obstacles (and preventing them next time)
When you run your own business, nobody else is in charge of you. You succeed on your own, and you fail on your own, too. Sometimes, that means that you end up in a financial jam in your personal life.
When that time comes, explain the pros at Canadian lenders Eastern Loans, you’ll need to get cash fast. Letting bills go unpaid can be disastrous for your credit. Make a plan, get the cash you need, and start working to pay it back.
Pay it back as fast as you can, because interest rates can get you if you don’t. And start saving fast for the next potential crisis. Whether you learn this lesson the hard way or are learning it ahead of time right now, take it to heart: If you run a small business, you need an emergency fund. That’s where you’ll get the cash that you need to cover unexpected expenses or replace lost income.
Getting help when you need it
Not all of this is easy, and that’s OK. If you find yourself in over your head, consider bringing in business consultants or discussing your personal finances with a financial adviser or, if the situation merits it, a bankruptcy lawyer.