While being your own boss gives you the freedom to run your business as you envision, a number of concerns creep in about your next income. Among them is when that next income will come, and how long it will stretch to sustain the business.
Michael Thotho, a personal finance expert at Centonomy, says that the trick to putting your business finances in order lies in proper planning of personal finances. That starts with having more than one bank account.
1. Separate personal finances from business finances
Thotho strongly advises small business owners to open both a current expenditure and a business account.
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“Your money is your money but your business’ money is not your money. You can separate finances by having a separate account for your business where you channel all your business income then pay yourself a salary.
The salary can be based on what your expenses are, or the skills and time you put in to ensure the business is running smoothly such as paying suppliers, buying more stock, paying more bills etc,” says Thotho.
2. Pay yourself first
It is believed that if you don’t plan for your money, someone else will. These could be vendors in the streets, supermarket deals, or the in-your-face billboards advertising sales and promotions.
Paying yourself first means putting money aside to save first before you ‘pay’ anyone else. “When you think of spending, there is always something to buy. There is always a thing to spend money on. It is not a bad thing to spend because that is how the economy grows. Start with 10 per cent of your salary. If you do this overtime, it becomes a habit,” he says.
3. Track where your money is going
A budget and spending tracker are recommended tools to help track your expenses.
There are many budget tracker and planner apps such as Mint, Goodbudget, You Need a Budget among others, which will guide you in your personal finance planning.
You could use a bullet financial journal to list down each single coin used. As you track your spending, you will be able to know your money habits, trends, and needs.
“When you continually do this, you will be able to know that you spend a lot of money on a particular thing on certain days based on your work schedule. It shows you where your money is going. As you track it for a day, a week or a month, ask yourself if there are money habits you can change. And start to,” he says.
With extended use of these tools, you can learn where you’ve come from, you can tell where you are and you can know how far you have to go.
4. Regularise your income
Thotho believes one way to set specific financial goals without a steady income is by finding out how much you need to live on as well as run your business.
You can then decide to withdraw money from the account either weekly or monthly depending on your needs. The goal should be having a regular time when you withdraw your money from the account, and not whenever you feel like.
You can also choose to invest more in your business from your salary.
5. Plan for Retirement
There are retirement plans an entrepreneur can consider. You can start saving for your future through Retirement Benefits Authority, Old Mutual or different institutions which provide services that best suit your financial goals.
“Retirement should not be a matter of age but a matter of when you do not have to survive on work to live. That said, start planning now. Put something aside for yourself every time you make some money. Put it where it has potential to grow. Invest it. This is because with inflation, things will generally be more expensive in future than they are now,” Thoto says.