Running a small business is not for the faint of heart. Not only do you have to keep track of money coming in and out, but small business owners also need to be aware of how their personal habits and decisions can affect the success of their venture.
When you’re an employee, you are paid regularly and you can use that income however you want. You don’t have to worry about how the credit card debt you may have racked up in your personal life will affect your work life; it’s completely separate. But if small business owners don’t make sound personal financial decisions, they can easily put themselves, and therefore their small business, in dire straits.
While certain companies, such as Merchant Growth, can help with quick small business financing solutions, being aware of the connection between your finances and small business can mean the difference between success and failure. Let’s take a closer look at how your personal spending habits affect your small business.
Issues Bad Spending Habits Can Cause For Your Small Business
Having bad personal spending habits can harm your small business in a number of ways. Here are some of the more detrimental consequences:
Difficulty Obtaining Loans or Credit
High levels of personal debt can severely damage small business owners’ credit scores and leave them unable to access loans or other forms of credit. With a deteriorated credit score, lenders would likely perceive small business owners as high-risk borrowers and be less willing to offer loans or lines of credit, meaning small businesses may not have the funding they need to stay afloat and succeed. This is particularly true for traditional financial institutions who have much more rigid criteria when applying for small business loans.
Cash Flow Issues
As a small business, it is essential to be prepared for any unexpected events that occur such as employee resignations, equipment failures, and natural disasters. Without the proper preparation, sudden financial difficulties can set your small business back significantly and potentially even cause it to go into unmanageable levels of debt. While there are certain business factors that may affect cash flow such as inventory purchases, delays in receivables, or payment only upon completion of a project, poor personal spending habits exacerbate the impact of these unforeseen expenses and put your company at risk of going under.
Limited Growth Potential
Bad personal spending habits can be an Achilles heel for small business owners, as ill-advised financial decisions often use up resources that the business needs to succeed in today’s competitive marketplace. When small business owners do not manage their money carefully, it can limit their capacity to invest in areas that will help the business grow and expand. Mismanaging funds might be the difference between being able to seize an opportunity that pushes the business forward and being left behind as what is required for success in your industry evolves.
Loss of Focus and Reduced Productivity
Poor personal spending habits can wreak havoc on a small business. Unstable spending can place you in a position of financial distress that over time takes its toll on your mental and physical health. Increased stress and anxiety, combined with the pressure that comes with being a business owner, does not bode well for the business itself. Businesses reflect those who own and manage them, and if your poor money habits are causing you undue stress, it will show in the performance of your small business. Unlike your personal spending habits which only affect you and potentially your family, as a small business owner you are also responsible for your employees financial wellbeing when it comes to salaries being paid in full, and in a timely manner.
Good Financial Habits You Can Work on Building
Although poor spending habits can have serious consequences for your business, the silver lining is that these habits can be changed. Here are some positive financial habits you can build to put your small business in a position to succeed.
Creating a Budget
Having a budget for your small business is essential to it running smoothly. Budgeting offers small business owners the ability to plan and track where they are investing their funds while ensuring that all bills are paid on time, a habit that will help boost your credit score.
Creating a budget also allows you to identify any unnecessary expenditures, so you can make the necessary changes and save more money with cost-effective alternatives. By developing and sticking to a budget, small business owners can stay on top of their finances and maximize the use of the resources they have available.
Building an Emergency Fund
Setting aside money for unexpected expenses is an important element of small business success. Having a dedicated emergency fund can help you handle whatever financial issues may arise, be it an employee quitting, small scale repairs to equipment, or any number of other small scale disasters that can ruin cash flow. Having an emergency fund stashed in a savings account will help you avoid having to turn to costly loans and lines of credit to cover unforeseen expenses, allowing you to turn to these financing options when you are ready.
Keeping Business and Personal Finances Separate
Running a small business means keeping track of a lot of details and commitments. One of the key elements to staying on top of all your finances is to keep your business and personal finances separate.
Not only will this help you stay organized, but it also makes it easier to track expenditures and monitor your small business expenses. Separating personal and business finances will help you get in the habit of investing profits back in the business as well, which will help your business grow in the long run.
Seeking Professional Advice
As a small business owner, it is in your best interest to consult with a professional financial advisor or accountant to ensure that you have reliable guidance and support to make informed decisions about your finances. Doing so can help you develop strong financial strategies that are tailored to your business goals and financial objectives. You will be better equipped to make decisions regarding:
- Expense tracking and management
- Cash flow projections
- Retirement planning
Ultimately, consulting with a professional financial advisor or accountant can make all of the difference when it comes to setting your small business on the path to success.
Merchant Growth Can Help Fund Your Small Business
Whether you need funding because your small business has come up on tough times or because your small business is thriving and needs to grow, Merchant Growth offers a variety of small business financing options such as fixed financing or e-commerce financing. With minimum eligibility requirements, it’s easy to secure financing and get your small business moving in the right direction. Get started today!