Why to Keep your Business and Personal Finances Separate

A business despite being shaped and nurtured by the owner like its own baby has its own distinctive identity. The owner and the business cannot be considered one. But in cases of small businesses, important financial separations, being governed by the same person, are brushed off unnoticed. Personal and business finance become intertwined.

 Keep your Business and Personal Finances Separate

Record of income and expenditures is the factor which indicates the performance of the business and thus should be kept separate from personal financial records. The money line between the two should not be blurred otherwise it could create an unpleasant financial situation.

What could go wrong if your finances are intermixed?

Your business has its own identity and there are several reasons why their finances should not be interwoven with personal finances. If the thin line between them is crossed the consequences could be severe.

Risking personal assets

mixing finances can put business owner's personal assets at risk

If small business owners mix their finances, their personal assets could become prone to risks. An outsider may claim personal assets for business liability and the business owner may not be able to evade it.

Complicated tax dues

If personal and business finances are intermingled, the business owner may have difficulty in calculating their taxable income. This may result in complications and the owner may have to pay penalties, fines, or higher taxes that can otherwise be avoided.

Messed accounts

In certain cases, small business owners may assign personal assets under business assets to reap the benefits of depreciation and lower their tax liability. The case may be vice-versa also. This practice can be unhealthy for the business as the owner will never be able to apportion the assets separately.

An Unprofessional Approach

separate personal and business finances is a sign of a healthy financial practice and professionalism.

Clients, creditors and vendors hesitate to develop work relationships if they sense a lack of professionalism in the company Having separate personal and business finances is a sign of a healthy financial practice and professionalism. This gives assurance of the legitimacy and competence of the business allowing them to build a long term professional relationships.

Doubtful creditworthiness

When business cash and personal cash are not mixed, it is easier to manage the cash flow into the business and the creditworthiness of the business is more perspicuous. Since the financial investors can tell if both the finances are mixed up, credit agencies retreat in providing loans to businesses that do not have separate assets and liability checklist.  

 businesses need to have separate assets and liability checklist

Maneuvering techniques to keep the finances apart

  • Small business owners have to keep separate financial records for their business and their personal investments and expenditures.
  • The bank account for the business should be separate and so should the debit and credit cards, so that payments and deposits of both the accounts go into and from the appropriate account.
  • Drawing out a salary from the business account every month shall enable both the business account and the personal account to exhibit debit and credit accordingly.
  • Services of a skilled financial accountant are mandatory as they can help give the right accounting treatment, categorizing expenses and preparing clear books of accounts.

Small business owners often muddle up between the two finances.  They overlook that keeping separate accounts is rudimentary to success. To learn more about how you can keep your business and personal finances separate. Contact the experts at FFPCT here – FFPCT Business Finance Consultants and book a free consultation.

Best Exit Strategy Ideas for Small Business Owners

A business is started and established with an aim of continuance, but during the period when it is flourishing and growing there may be some unforeseen occurrences that can enforce its shutdown or the transference of its ownership to a third party. A business exit plan allows a business owner to sell his or her business to a 3rd party and reduce losses in case the business is failing to do well. It also lets them exit a successful business, and make a profit. A well-planned exit strategy works like a safety net and must be included in business financial planning.

Best Exit Strategy Ideas for Small Business Owners

Business Exit Strategy

An exit strategy is a simplified approach that is planned well in advance. The reasons for a business ceasing to exist may not always be because of failure or incompetence to carry it through. There may be other reasons for its dissolution such as health problems of the owner, their retirement, another thriving business offer or opportunity, urgent need to raise funds or lack of interest in the business.

Thus, in simple terms, the business exit strategy serves as a safety net for the entrepreneur when they seek to get returns from the business without working in it.

Planning business exit strategy works like a safety net for the entrepreneur

An Ideal Business Exit Strategy

A business exit strategy should not leave one chewing their nails or at their tethered edge with bouts of anxiety. On the contrary, it needs to make sure such a situation does not arise. Therefore, it’s vital that every aspect of the business is well thought out, including the exit plan. An ideal business exit strategy must enable the business owner to emerge with a win-win scenario.

What are the options at hand?

Out of an array of business exit strategies, we have listed down the most viable ones for small business owners. The best one depends on the business’s requirement and the reason for its exit.

list of business exit strategy options for small business owners

1. Informal buyout

Under this option, the business ownership is transferred to a family member, friend or an existing employee. This kind of selling is a friendly closure with easier terms and conditions. It can be passed on to an existing family member as a legacy or the share of the owner can be taken over by a partner.

2. An ‘On sale’ signboard

The business can be sold off to one of the competitors, a larger company or to an interested investor. This can help the business procure a good market price. But this kind of sale is not feasible when the owner decides to sell immediately owing to contingency as it may not fetch fair returns.

3. Empty out slowly

The owner can drain out the business year after year by drawing cash and assets from the business at intervals.  This strategy takes the business through a slow and gradual exit.

happy business owner with an exit plan

For small business owners, planning for an exit strategy may not be as easy as it appears on papers for there is an array of emotions attached to their business. It implies that a day may come when they may no longer be at the decision makers. But a skillfully created business exit strategy can protect your future and that of your family and employees.

Do you need advise on how to best plan an exit strategy for your business? Book a free consultation with the experts at FFPCT here – FFPCT Business Finance Consultants

How Small Business Owners Can Diversify Their Investments

Small business owners frequently attune themselves mentally with the concept that their business is their sole benefactor and during financial upheavals and retirement it shall be enough. What they often fail to comprehend is that by investing only in their business they are skating on thin ice. Eliminating or reducing these risks requires maneuvering through financial strategies, diversification of investment being the foremost.

How Small Business Owners Can Diversify Their Investments

Diversification in investments is an assured strategy to mitigate unknown financial risks and avoid losses to capital in such ways that even if there is a slip, there are backups that will not let the business owners fall flat financially.  Thus, rather than jeopardizing their hard-earned revenues by being solely dependent on it, it is judicious that their portfolio is inclusive of a wide variety of investments.

“Investing is the intersection of economics and psychology.”

                                                                          -Seth Klarman

Here are six investment approaches that can be embraced by small business owners:

Dealing in Penny stocks- Penny stocks are available for trading in the market in less than a dollar. One will not start minting money by investing in them but with consistency, the accumulated money begins to grow.

diversify your investments by Dealing in Penny stocks

Keeping away from the business’s industry- One tends to invest in a trade they are familiar with.  They understand the pulse of the industry they are conducting business in and thus they feel comfort and confidence in investing in stocks concerned with the same industry. But that approach should be avoided. As a small business owner, one needs to step out of that zone as their business is already covering that aspect of investment.

Indulging in rental properties- If the business can accommodate then investment in rental properties is a pretty good strategy to diversify. Properties are considerably remunerative and also provide the business owner an opportunity to invest in some other sector other than stocks.

Investing in stocks- Investing in stocks is a beneficial investment strategy. It is vital to critically appraise the performance of the stocks the business owner is interested in and research on them meticulously before taking a plunge.

small businesses can invest in stocks to diversify their income

Markets are notorious for their unpredictable ups and downs. It is important that as an investor the business owner is mentally equipped for the same.

“Diversify in stocks and bonds, as in much else, there is safety in numbers”

                                                                                          -Sir John Templeton

Start building contingency fund- Keeping aside some cash as an emergency fund can be considered another safe bet. It can be looked upon as an investment strategy. The small business owners can begin by taking out small amounts of cash on a weekly basis and then gradually increase the sum. By the end of it, they will be amazed at how much they have managed to set aside.

small businesses can invest in cryptocurrency

Crypto currency is another lucrative option- A small business owner can invest in cryptocurrency considering it another diversification strategy. To flow with the tide and swim in safe waters always pays off. With the way crypto currency is making its way into every investment portfolio, a small business owner can put their funds in it.

It is crucial that small business owners diversify their investment after diligent and wise investment strategy formulation. It works as an umbrella during contingent times.

Do you need assistance diversifying your investments? You can always book a free consultation with the experts at FFPCT here – FFPCT Business Finance Consultants