How Important is Planning and Budget?

Whether it's last year's lottery winners or professional athletes, we've all heard stories of the millionaires who are suddenly broke because of poor money management. As small business owners, we might not find ourselves hitting millionaire status anytime soon, but we can learn a few things from the costly mistakes of others.

Don't routinely spend more than you bring in - In the start up phase, this can be unavoidable, but as you get established, watch your bottom line carefully to make sure you are not staying in the red.

Plan for big purchases - repairs or upgrades will be needed over time but you can plan for those by building up a savings account to offset those costs, rather than scrambling & taking out a loan or use a credit card you can't pay off.

Use credit wisely - Your business can build its own credit score & that will make future financing easier to obtain. Applying for a credit card or line of credit in the businesses name is a great place to start. However, if you don't pay it off each month, it can ding you. Make sure you're in a spot to manage the credit well before you go down that path.

Build a cushion of capital in your business - you may be tempted to keep the profit in your business as low as possible for tax reasons, but allowing yourself to accumulate a cushion of savings can help you out down the road. Talking with your CPA about the best strategy & amount to save can help you balance taxes and security.

Pay yourself regularly - even if you are not making a ton of money, don't let your personal finances get messed up in the process. At the beginning, you may only be able to give yourself a small regular draw, but set it up to happen automatically so you can plan your personal bill payments. As the business grows, so should your draws. This will also help you avoid using your business account for personal expenses because your personal bank account is empty.

Starting and running a business can be stressful, but planning for your finances on both the business & personal side will alleviate some of that stress and help you to see a clear path to move forward.