The impact of personal finances on your business

This blog concentrates primarily on business finances, so why the sudden interest in personal finances?

Well, it’s simple. What happens with your personal finances doesn’t stay there; it trickles into your business for better or for worse.

Stories like Curt Schilling’s 38 Studios abound in the news, so the connection between personal and business finances is real.

That’s why today’s post will cover the connection between personal and business finances and give some strategies for avoiding problems.

Let’s go!

Personal and business finances: Connecting the dots

It’s pretty hard to argue the way most entrepreneurs operate their business finances is a reflection of their personal money habits.

If you are conservative with your personal finances, you’ll most likely be the same with your business finances. The opposite holds true, as well.

It isn’t that either approach is right or wrong all the time, but a good personal self-assessment can help you realize when your money nature at home may create problems for you at work.

For example, if you pinch pennies at home in a way that yields little return, that habit could cause you to miss a chance at business expansion out of fear of expending too much capital.

All money moves are behavioral. The key is recognizing the behavior patterns and determining if they fit your business needs.

If you aren’t sure about your personality type, look at your credit score. You may not think it reflects your personality adequately, but potential lenders might.

They regularly review personal credit when considering business loans.

That’s because they know personal debt can strain business resources, and that can lead to problems like the ones found every month in the IRS criminal investigation press releases.

The risk of an owner diverting business profits to cover personal debts is real, and lenders take it seriously.

That’s a tough pill to swallow, but there is something you can do to avoid letting your personal financial habits hurt your business.

Aligning personal and business finances

The first thing to recognize is the similarities between personal and business finance. Budgeting, tax strategies, saving, and investing skills apply to both worlds.

So, take time to study books on personal finance and business literacy. You’ll begin to see connections and patterns in your financial behavior.

You can also ensure you not only have personal and business financial plans but that they are regularly reviewed, too.

Schedule quarterly check-ins with a CPA, and don’t shy away from showing them your personal and business finances. They can offer insight and help on both.

Of course, it’s good to follow the age-old wisdom of separating personal and business finances. Create as much friction as possible. For example, don’t just have different accounts for your personal and business finances; have different banks.

Don’t set up systems that let you easily transfer money between the two. And set up third-party accountability systems for business expenses that remove the temptation to use them for personal expenses.

The Bottom Line

Our financial nature is part of who we are, for better or for worse. The key is recognizing it, learning, and getting help controlling behaviors. Third-party insight is a huge boon in eliminating behavioral blind spots we all have.

So, take some honest stock in your behaviors, get some outside insight, and you can start controlling your business future in a deeper, more meaningful way.