Personal and business finances: it pays to take a professional approach

Only longer-term planning will produce tangible results.

It is crucial that business owners separate personal from business finances. Company money should not be used for personal outgoings and personal assets should not be used to cover operating costs or as collateral for the company’s liabilities. Nor can you use company borrowings for personal purposes. Of course, this does not mean that dividends cannot be paid if operating profit permits. It is also possible to secure a bank loan for a company by giving a personal guarantee.

In general, separating business from personal finances makes for sound management practice. It shows professionalism and enhances the bank’s trust in you when seeking financing, for example.

Keep track of your finances

For both entrepreneurs and individuals, it is important to keep track of your finances and prepare a balance sheet, because this financial statement reports your assets and liabilities and is essential. It shows regular income as well as planned and fixed expenditure. This means that changes in financial assets can be estimated and adapted, if necessary.

According to your business goals, it is important to build up sufficient reserves to be used to expand the business, replace company equipment or for innovation. It’s also a good idea for individuals to build up reserves, as longer-term planning is required for large projects or big ambitions. For this, you can rely on your bank’s expertise, especially when it comes to drawing up the statement of assets and liabilities. There are also various online tools for day-to-day budget management. These tools are not intended to replace the expertise of a professional, but they do offer many useful functions to track the status and movements of your personal finances.

Holistic approach

Is it worth more to invest operating profits in the company or in a financial portfolio? Are the holdings optimally structured? As an entrepreneur, do you intend to fund your pension by selling the business? How will the estate be managed?

The advantage of a full-service bank is its ability to take care of both retail and business clients from a holistic perspective.

These are questions that concern both the personal and business spheres. And to answer them requires a bird’s eye view, which calls for a certain expertise. The advantage of a full-service bank in this respect is its ability to take care of both retail and business clients from a holistic perspective. The range of services available enables the bank to devise tailored solutions in line with the client’s personal and business goals.

Diversification makes sense

Risks are an unavoidable part of setting up in business. The business owner may have given up a secure income to assume responsibility not only for their own investments but also for other people’s capital or income. However, it must be said that the initial chances of success are not great. Estimates vary, but around 80% of start-ups fail within the first 18 months and generally encounter major obstacles. For that reason, you need to be well-prepared, especially when it comes to your finances.

Business owners tend to put their money in just one or two capital assets, usually in the business itself and their property. In a way, this makes complete sense. Why dedicate your life to your own company if you aren’t going to reap the rewards? Owners often believe that they can get a much better return than any asset manager. This can lead to them underestimating risks and failing to see the benefit of diversification, be it for the company or in their portfolio of investments and assets.

It makes sense to build up a certain amount of capital outside the company.

It makes sense to build up a certain amount of capital outside the company, namely in assets that are unrelated to their main source of income. Of course, it makes sense to invest in an area familiar to you, but the same applies to investments outside your own field.

Business owners must be prepared to dip their toes into unfamiliar waters and invest in areas with different financial conditions and risks. This necessitates expert advice, something that is particularly helpful when positioning your investments. You should also keep track of the company’s overall finances at all times.

A diversification plan requires all aspects to be analysed, from the individual’s patterns of consumption to family responsibilities and retirement savings. Often the solution will not solely consist of investments, but will also include insurance elements.