Balancing Personal and Professional finances: 3 Tips for Solo Entrepreneurs

Sun, Feb 14, 2016

Financial Advice

Some entrepreneurs are forced to invest everything to their start-up business, from the equity that exists in their home to the capital that they have scrimped and saved for throughout their lives. This is particularly true for solo entrepreneurs, who are often attempting to build a business while raising funds as a party of one and making huge personal sacrifices.

This is not an option for solo entrepreneurs of an older persuasion, however, who are likely to have dependents, more valuable assets and a diminished appetite for risk. In this respect, solo entrepreneurs must also make a clear distinction between their personal and professional funds, as they look to execute calculated business risks that do not lead to the depletion of personal assets.

How to balance personal and professional Finances as an entrepreneur

Above all else, this ethos will create a financial safety net that will offer genuine peace of mind in the event that your venture fails. With the New Year now upon us, now is the ideal time to learn how to balance your personal and professional finances for the future.

Manage your personal finances and minimise risk

If you are to effectively manage your personal and professional finances, it is important to implement a long-term plan that enables you to optimise disposable income levels, build wealth and create a separate investment fund for your venture. This allows you to gradually put distance between various income streams and accounts, while there are two stages associated with this process.

The first revolves around the reduction of monthly and annual expenditure, as you look to live within your means and optimise your level of disposable income. This should start with the downsizing of depreciating assets such as cars, as this lets you find more cost-effective solutions without impacting on your long-term personal wealth. From here, you can look to cut your weekly expenses and the amount spent on food, beverages and utilities, before committing a percentage of this additional income into a brand new savings account.

Secondary to this is a keen attention to detail, which helps you to recognise existing financial laws and minimise long-term fiscal risk. This involves relatively unknown nuances such as the link between insuring and procuring secured assets such as cars and houses, for example, which dictate that low liability limits on your automotive insurance could ultimately cost you your home. If you have basic state-minded coverage and are involved in an accident that exceeds your liability limits, you may be forced to sell your home to cover any subsequent judgement fees.

Such an occurrence could place a significant strain on your business in addition to forcing you to foreclose on your home, blurring the financial boundaries and making it impossible to secure future lines of credit.

Embrace new income streams to build Professional Funds

Over time, this should diminish your reliance on personal assets to secure business finance. While reducing your outgoings and creating greater financial security helps to lay the foundations for a prosperous and sustainable solo venture, however, you may also benefit by embracing new income streams and increasing your earning capacity. This can even help you to acquire new personal assets in some instances, while also generating capital that be invested into your business.

If you are a busy professional that already has accumulated wealth, you may best served by investing assets that deliver passive income over time. The state of the rental market in the Western world suggests that purchasing real estate as a buy-to-let property would be the most lucrative over the course of the next 10 to 15 years, with annual rents in the UK alone set to rise consistently by 7.5% and reach a staggering £72,000 ($106,336) by the year 2033.

The same trend is prevalent in the U.S., where the average annual rental return is continuing to soar nationwide. Properties in Rocky Mount, North Carolina currently offer a gross rental yield of 41.57%, for example, while those in Georgia deliver returns of between 20% and 25%.

For younger entrepreneurs with minimal resources, a more viable option is to market an in-demand skill as a freelancer. This will instantly create an income stream that is separate to your full-time job, boosting your earning potential and future career options. Either way, you can quickly build a business growth fund that does divert any of your existing income or the equity that exists in your assets.

Use Separate Accounts to manage your money and Accumulate Interest

The recent election in the UK attracted a staggering 30 million votes, which represented the highest rate of engagement since Tony Blair’s New Labour swept to power in 1997. This level of interest was at least partially inspired by the Tory government’s willingness to help citizens save, with the creation of specialist accounts and a more frugal outlook central to the future of the nation.

The ability to save helps you to build your wealth and creates the additional income that can bring a commercial vision to life. It is also important that you save this money responsibly; however, taking advantage of unique accounts and specialist savings vehicles that separate income streams and optimise the accrual of interest.

So if you already a personal savings account, it is important to open a new vehicle in which to retain the funds that will be invested into your business. This can be funded with a fixed and manageable percentage of your overall income, or you can simply commit all additional earnings into the brand now account (depending on your precise needs). This is a simple step that instantly separates personal from professional finances, while also making it easier to manage your wealth and make expenditure decisions.

You may also want to consider investment and trading accounts as funding vehicles, especially if you intend to scale your business growth plan over the course of two or three years. Managed portfolios such as those offered by Nutmeg not only offer diversity to savers, but they also allow money to be invested over a fixed period of time and pledge to deliver an estimated return depending on your appetite for risk. Once your account has matured, you will be left with a viable source of income that can instantly be invested into your business.


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