How Best To Budget and Manage Your Business So That It Doesn't Affect Your Personal Finances

Updated: October 22, 2018.

Establishing start-ups

Although most of us keep track of our personal finances to some extent, budgeting for a business can be a much more difficult proposition; but it’s certainly more essential. If one accepts that many people establishing start-ups are entering into business for the first time, then the people involved often need to make changes in their money management habits. If you fall into this category, then the first thing you should do is to structure the start-up so that it can’t adversely affect you personally if and when the business goes pear shaped.

Business Plan

Always, always start out with a business plan. Put it into writing. There are lots of templates available free of charge for business plans on the internet, and it is easy to find the one which best suits you. Complete the plan in as much detail as you can and be honest in doing so. Do not make grand assumptions on anticipated sales levels or underestimate costs. Include a cash flow projection. Most important, decide how much the business is going to need to get it off the ground. If you have sufficient funds then you can get the business started. If not you will be involved in borrowing to get the necessary funds prior to starting.

Limited Company

You now create the entity that will carry on the business. You can do this as a sole trader or as a private limited company. If you become a sole trader you personally will be liable for all debts if the business goes pear shaped, and YOUR savings and personal assets are at risk. Form a Limited Company. It is cheap to do and whilst it is slightly more onerous in terms of filing annual accounts and returns, it will afford personal protection if the company goes bust. You are personally liable only to the notional value of the shares in the company which you own, which can be as little as £1.00.

When you have decided from your cash flow forecast just how much money the company needs to get going, you then inject that amount of personal capital or borrowed capital into the venture. That is the money you use to run the business and you do not mix it up with your personal finances. This may seem daunting at first, but it’s a necessary move to take if you want to avoid subsequently falling into financial difficulty due to you not having segregated business monies from personal.

Look at Competitors

Having done this, a well-managed, well-budgeted business should be capable of sustaining itself through sales alone without the owner having to dip into their personal savings, and here are a number of ways to help you get to that point.

Whilst all businesses are unique up to a point, that doesn’t mean they don’t have similarities with others in the same industrial sector too. If you can, analyze the success and failings of immediate and nearby competitors as well as their financial situations over the past few years. This can provide you with inspiration for ideas that work and warnings for those that don’t. When doing this, bear in mind that others may have weathered particularly difficult periods to get to where they are. It is a well-known fact that, generally, smaller, single product-based or single service-based companies struggle to cope in difficult times compared to their larger, more diversified counterparts. Take this into account when analyzing how successful certain schemes and approaches were during these times.

Accounts and Spreadsheets

To many, Accounts and Spread Sheets are boring and time-consuming, but they are essential in any business. They will not only provide a financial history of how a business is performing but, having all your data laid out in accounts or formal spreadsheets will enable straightforward and reliable decision-making. Record transactions accurately (the law requires it anyway) and you’ll be grateful later on when you can make decisions based on your incomings and outgoings with more certainty.

You will also be secure in the knowledge that you can adjust your previous forecasts based on accurate data, so you can ensure that there were no flaws in your plans. If using systems such as Microsoft Excel, you can also configure your settings so that the computer works out calculations and revenue totals for you. Alternatively, you have the information all in one place for whenever you want to do it yourself manually.

Plan for The Future

No matter how good a businessperson you may be, events will happen which you didn’t predict and things will not always go perfectly to plan. Although it isn’t possible to predict every unexpected event that impact your firm, you can assess what are the most likely occurrences and the effect of them, so you can estimate how much they may cost you if they happen.

Beyond this, it is wise to add a margin onto income revenue projections when planning how much income you will need for future years. That way, if worst comes to worst, you’re covered, and if it doesn’t, you have extra funds to invest.

Source Additional Financing

If your budgeting doesn’t go quite to plan, then you still do not need to fall back on personal savings. In such situations, it is worth considering short-term loan options be they bank or family sourced unsecured loans. Do not offer personal property by way of security, nor liens on savings accounts. If you do then all the protective measures you have put in place can be for nothing.

Although many lenders require a good credit history to be eligible, there are countless companies who will consider those with poorer ratings and less favourable financial circumstances. This means that whatever your situation, there will be a lender out there willing to help you establish a successful venture.

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