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Small Business Solution - Boost your Business

Personal Finance for Small Business Owners

Overview: For small business owners, business and personal finances become inextricably tied. Here's how to make sure ALL of your finances are healthy.

If you've ever found yourself calculating just exactly what percentage of your power bill you can write off as a home office deduction, or watching the calendar approach December 31st when making a major equipment purchase, then congratulations! You're a small business owner.

Small business owners' personal finances and business finances are often tied in ways that are hard to fathom. Even the simplest budgeting programs stymie small business owners at the very first question, "How much is your monthly net income?" As with many questions in small business, the answer to that one is "It depends!"

While every small business owner's situation is different ? maybe you're the sole breadwinner, maybe you have a spouse with stable income, or perhaps your whole family is in on the business ? there are a few rules of thumb that will help small business owners keep their pocketbooks in order.

Quick Solution: Organize and track your finances with Outright. Outright makes it easy to simplify your bookkeeping to save you time and headaches.

1. Create a Budget

As we mentioned above, monthly income? Who knows! But hopefully you're at a point where you have at least a small baseline of income coming in, whether it's from your business or another source. A good rule of thumb is to start there and try to budget for necessities within that set income. For many online sellers and service providers, income is seasonal. Online sellers see a huge boom around the holidays while freelance writers might find themselves struggling for work as their clients take off to spend time with family. For that reason, it's a good idea to try and think of your income as annual instead of monthly. Sure you'll have to spend more time making an annual budget, but then again, random expenses like a car repair or a health problem won't come as a huge shock. If you're confused on this, try setting up a free Outright account to quickly get a read on your income and expenses from the past year or two.

2. Start Saving for Emergencies

After you have your budget in place, it's time to think about saving for a rainy day. Personal finance gurus the world over advise varying amounts of emergency savings, but a good rule of thumb is to save enough to cover six months of expenses.

3. Pay Down Debt

Small business owners often start businesses for a sense of freedom. But heavy debt can steal that sense and make striking out on your own away from a steady income feel like a foolish choice. Methods like the Debt Snowball or the online GetZero.com program can help you get out of debt the smartest, quickest way possible? and restore that sense of freedom you sought when you opened your business. Also, don't forget to keep track of your expenses on a regular basis to make sure that you aren't adding to that debt!

4. Save for Retirement

You started your business because you love what you do, right? But that doesn't mean you aren't going to want to retire someday. It's not enough these days to count on Social Security or the equity in your home to get you through your golden years, and all self-employed people should save for retirement ? the earlier the better! Fortunately, the Self-Employed Individual Retirement Account, and in many cases, the Roth IRA, are both great vehicles to start saving for the day you stop working so hard. Retirement plans often have different tax implications as well, which could save you money with the IRS in the here and now.

5. Buy the Right Insurance

It's a sad fact of life that one bad move can cost you your business. Whether it's getting sick and having to shut down your sole-proprietorship or making a mistake that leads to a lawsuit. It's in these moments that we're grateful for insurance, sometimes ? when it isn't needed ? insurance can seem like a costly line item in your monthly budget. For example, an umbrella policy will protect your assets should you be sued, and disability insurance to protect your income should you become unable to work. Consider speaking to an insurance agent about policies that might be right for your business.

Every small business owner's situation is different. You might be struggling to pay off the high interest credit cards you started your business with, or perhaps you're working on making enough "side" income to quit your day job. We hope these tips will get you started on the right path to business finance AND personal finance balance and success.



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