Every business guru states that you should keep your personal finances separate from your business finances. And, we could not agree more.
However, separating your business life from your personal life should only be about monetary transactions. We all learn life lessons (knowledge) that not only work in our personal lives but can easily translate to our business lives as well.
Knowledge is power after all and if it can help get you get ahead in your business then it really does not matter where that knowledge originated from.
To that note, there are many personal finance tips that relate very well to managing the financial aspect of your business.
Let's review a few of them:
1) What You Need vs. What You Want:
You may want a Lamborghini but know that it is not a good vehicle for a small, growing family - it's not good on gas, has no room for groceries and cannot take the kids to soccer practice. It just does not make sense for you - even though you would really like to have it.
The same goes for our business. You may want that 50,000 square foot building or that $50,000 piece of equipment. But, if your business cannot use those items to generate more revenue then they cost - then those types of purchases just do not make sense for your business.
And, it is just not capital purchases either. Do your employees really need a foosball table in the break room? Or, does your business really need that $500 per month T-1 line when a simple $50 per month DLS line would work just fine.
Being in business is not about satisfying what you want but taking asset that you need and leveraging them to grow the business - by bring in more revenue then that revenue costs to get.
If you don't need it for your core business - then don't waste your scarce money on it!
2) Living Pay Check To Pay Check:
If you over spend in your personal life, you usually run out of money before that next pay check comes in.
What happens is as soon as you get your pay check, you immediately look for ways to spend it - most of the time for things that leave you little or nothing to show for it. Some even spend their pay before they get it in their hands. Sure you had a great time, but that money runs out and runs out quickly.
Then, about half way between pay checks, a week after your last pay period and a week before your next pay day - you have an opportunity to do something really amazing - something that would either improve your life or maybe even bring in more money for your personal use.
But, you have to decline because you have no money to take advantage of it and the opportunity will not wait for you to get your next check.
This is a great lesson for business. Far too many businesses spend their revenue before or immediately after they get it - regardless if that spending does anything to perpetuate the business.
Example: I worked with a brand new business owner who was helping doctors and other medical professionals collect payments from insurance companies. I took this business owner around to all the independent doctor offices I could find and helped him pitch his services. One of these contacts bit and gave him some business. The doctor provided him with about $10,000 worth of claims to collect on. Immediately, this business owner was able to get about 90% of those claims to pay from which he received a 10% commission.
Now, instead of taking that $900 and putting it into his business - to grow his business or setting some of it aside for new opportunities - he used those funds, for personal reasons like a new gym membership, took his friends out to dinner and purchased the latest cell phone with a very expensive plan, not for his business, but for his personal use only.
What happened is that this doctor, who was really impressed with this business owner's ability to collect, referred him to a college friend and colleague in a town about 85 miles away. However, this business owner had to decline the new business, not because he couldn't do it or because he was too busy, but because he did not have the cash to drive to the other town.
Not only did this mean that the business owner missed out on new business, but the referring doctor, feeling let down, did not give him any additional business after this incident.
3) More Money Will Improve Your Life:
In our personal lives, if we find ourselves short of cash, we tend to look for more money. Get a bank loan or maybe even a payday loan. While this may work temporarily, giving us more money to spend, if we don't change what we spend our money on, very quickly we end up right back in the same situation - short of cash and a life that is not improved but maybe worse off as we still have to pay for that new money.
In business, many entrepreneurs find that their expenses outweigh their revenue - especially if revenue is slipping. But, instead of looking at the business - what it is spending its money on or why it is losing or not growing revenue - the business owner thinks that just getting more money is the only answer.