The success of an entrepreneur cannot be measured solely on the basis of their company’s financial health; it also needs to take account of the state of their personal finances. What if the key to success is to manage your personal finances in the same way as you manage your company’s finances? That is to say: with foresight and rigour, and by drawing on the expertise of professionals?
Separate your personal and business finances
As the saying goes: “Good fences make good neighbours.” Applied to the management of your assets, this means that you cannot use the company’s funds to meet your household expenses and that your personal assets do not cover operating costs or any business liabilities. Similarly, you are not allowed to use loans taken out by your company for your own personal purposes.
We are not saying that you should not pay yourself dividends if your company is making profits, nor that a personal guarantee cannot cover a bank business loan. The aim is to have a clear view of your personal and business finances before examining possible cross-overs. With this in mind, the first thing to do is to carefully separate your personal accounts from your business accounts. Then, and only then, can you determine the portion of your personal assets that you are ready to invest in your business ventures.
Segmenting business and personal finances is the key to healthy financial management. It also enables you to demonstrate your professionalism and gain your bank’s confidence, for example when you apply for a loan.
Managing your personal finances
No responsible entrepreneur would ever neglect their company’s finances. Why should it be any different for your personal finances? Manage them with the same methodology and using the same tools as for your business finances.
- A personal statement of your assets and liabilities. This balance sheet provides you with snapshot of your personal financial situation.
- Your recurring income streams (from your business, your investments, property rentals, etc.) and your projected expenditure (household expenses, savings and investments, life projects, etc.). This enables you to anticipate changes in your financial situation and make adjustments when necessary.
- Short and long-term objectives. Depending on your business objectives, you set aside funds to expand your activities, renew your company’s equipment or innovate. Do the same thing for your personal assets. A major purchase, your retirement or the estate that you will leave to your children are all objectives that require rigorous planning.
You should manage your personal finances as rigorously as you manage your business finances!
Pour mettre en place ces outils, reposez-vous sur le savoir-faire de votre banquier, notamment pour établir avec vous votre bilan patrimonial. Il existe également différentes solutions en ligne pour la gestion quotidienne de votre budget telles que l’incontournable Mint, HomeBudget ou Optissima.To put these tools in place, you can count on your bank’s know-how, especially for drawing up your personal statement of assets and liabilities. There are also various online solutions for the day-to-day management of your budget, such as the indispensable Mint, HomeBudget and Optissima. These tools cannot replace the expertise of your bank, but have many useful features for gaining a clear picture of your personal finances and changes in your situation. If you use an online tool, you should be mindful of its personal data protection conditions and confidentiality. Excel spreadsheets are also available to be downloaded free of charge, but they are often limited to a list of inflows and outflows of money.
What is the smartest use of your profits? Should you reinvest them to grow your business or should you build up a financial portfolio? Are you in debt while your company is thriving? Are your assets sufficiently diversified and well structured? Do you plan to fund your retirement by selling your business? What about estate planning?
Although it is necessary to manage your personal and business finances separately, all these questions show the importance of having a clear overview of your assets and properly considering the following aspects: regulations, taxation, investments, financial risk management, etc.
This is where the expertise of experienced professionals is especially relevant. Among this group, a multi-business bank has the advantage of being able to propose a holistic approach to your assets. The range of services it can offer enables it to implement customised strategies tailored to your personal and business objectives.
So, our message to you in a nut shell is: manage your personal finances like a business!