Small Business Owners – Take Better Control of Your Personal Finances

Now is the time to get some clarity on all those financial figures.

When you’re running a business it can be easy to put all your attention on the facts and figures that relate to your work, as opposed to your own finances. However, the reality is that for most small business owners, personal finances are directly connected to those of the business. When business is good then your personal finances might be thriving – and vice versa.

Plus, your personal finances can have an influence over whether or not you can properly support your business, for example standing as its guarantor for a guarantor loan or additional borrowing. There are many reasons why it’s important for small business owners to be more in control of personal finances. So, how do you get it right?

Give yourself a buffer

Small business owners have to deal with irregular income and there could be some months when that income is much less than others. That’s why a financial buffer is important from an early stage. Put money aside in an account that is specifically intended to help you manage this kind of fluctuation and then don’t touch it. That way you’ll always have enough cash to cope with whatever the business does.

Diversify your income

It’s never wise to put all your eggs in one basket and, when it comes to the income from a small business, that’s especially true. To take a realistic view, many small businesses have a better chance of failure than success, which is why it’s important for small business owners to diversify income and assets so that not everything is tied up in one place. Create a range of different income streams, whether from investments or just the interest on savings and you’ll always have another option if the business goes south.

Budget better

It’s an odd trend that small business owners tend to be better at managing the budgets of their businesses than their own personal cash. Apply the same rules to your own budgeting as you would when creating financial predictions for the business – where does cash flow need to be, and when? Once you start to get your own budgeting right then you remove the risk that one day you might not be able to support the business because you haven’t managed your own money well enough to do it.

Keep all your accounts separate

This is a bit of a no-brainer and essential if your business is a separate legal entity. However, it’s also something that small business owners regularly fail to do. Your personal finances and the cash in your business should not be confused. Not only will it make things very complicated when it comes to doing tax returns if you’re trying to separate out the two but you’ll also find it harder to work out what money is available for the business and what is just for you.

Create retirement options

When you become your own boss for the first time a pension might be the last thing on your mind. However, given the unpredictable nature of business, you can’t rely on your own company to continue providing you with an income right through retirement. Pensions can be both a tax efficient option for withdrawing cash from a business and also a good way to save for retirement so they are worth investing in. Plus, if the worst should happen and your business doesn’t survive into your retirement years your personal pension is protected from any creditors who might come after the business. Of course, you don’t have to stop with pensions – or even with one pension. The more retirement options you have the better so research ISAs and savings accounts, investments and additional pensions to make sure you’re well covered.

Take care of the “what happens if…”

When you’re a small business owner you’re often working alone or with a very small team. So, what happens if you can’t get to work for any reason? And what happens if you aren’t able to work for a much longer period of time? If the business stalls because you’re not there to manage it that is going to have a direct impact on your personal finances. The way to plan for that kind of unpredictable event is with savings and insurance that will cover your lifestyle costs if you’re not able to work.

Know your entitlements

Even though you don’t have an employer you might still be entitled to certain benefits. For example, female small business owners may still be able to claim a maternity allowance even though there is no employer from which to claim maternity pay.

Negotiate all your interest rates

The interest rates you pay on business accounts will have an impact on how much cash is available – for the business and, ultimately, for you too. Negotiate all the interest rates, from overdrafts to credit cards, and don’t accept those that are too high or unattractive. Switch any personal debts you have to low or zero interest accounts to make repayment easier to manage. If you can get lower rates by doing both business and personal banking with the same bank then it might be worth considering.

Automate your bill payments

Most small business owners already have enough to do without manually processing monthly bill payments. Automate your payments instead so that you don’t risk missing any if you’re in the middle of a really busy period with the business. Some suppliers of energy or credit will also give you a discount if you set up direct debits with them so it can be worth the commitment financially too.

Save where you can

No, there isn’t likely to be much spare cash around if you have a small business, especially a start-up. However, you should still be trying to put money aside wherever you can on a personal level. Even small savings can make a difference if you’re dealing with something like car repairs or essential new equipment so prioritize personal savings alongside your business profits.


Tom is a former accountant turned online entrepreneur. He enjoys writing about finance and accounting topics. His passion is in improving productivity for individuals and helping them save money.

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