How you can invest and save while owning a business
Perhaps you’ve heard stories or talked to entrepreneurs who emptied their personal savings or took on a second mortgage on their home in order to get their business off the ground. While this kind of personal sacrifice by business owners might be admirable, it doesn’t always have to be that way.
Here are some strategies you can consider that will help you save and invest whether you’re getting your business up and running or growing.
Pay down personal debts
Don’t underestimate how closely tied your personal financial situation is with that of your business. Personal leverage, indebtedness and equity are two components of a borrower’s financial situation that can impact both the credibility and ability to borrow for your business. Entrepreneurs who take on significant personal debt to start their business often find themselves restricted from achieving notable business goals, given that they aren’t standing on a solid financial foundation. By focusing on paying down your personal debt as much as possible, you will have greater opportunity to pursue new investments for your business.
Create an emergency fund
Perhaps the only thing that’s certain when you own a business is that you will face uncertainty. That’s why it’s important to build liquidity for yourself and your company by putting a portion of your revenue aside for a “rainy day” fund as a part of your overall budgeting strategy. This will impact significant purchases on your horizon, such as physical expansion or acquiring new equipment. Oftentimes, personal cash injections can be required for these types of major purchases. It’s recommended that you have enough funds set aside to cover your operating expenses for at least three months. You can also consider establishing a business operating line of credit, which helps to preserve cash for short-term, working capital purposes.
Being conscious about establishing an emergency fund as a part of your budget is both good for growing your overall savings but also for enabling you to pursue new investments without as much risk.
From marketing to accounting to data security, there is no shortage of tools out there that can save your business significant time and money while completing essential tasks. Many of these tools can free up time and money for you to focus on the aspects of your business you’re most passionate about. While many people are somewhat resistant to certain artificial intelligence-based tools, embracing the latest technology can be a major game-changer if utilized effectively in your business practices.
Partner with a financial advisor
You’re juggling enough as a business owner. Working with a trusted financial advisor will help ensure that your investment strategy is tailored to your unique situation and will deliver the best results. An advisor will work with you to increase the diversity of your portfolio and focus on investments that directly contribute to achieving your business goals.
Give thought to your lifestyle choices
When your business is thriving and profits are high, it’s understandable to be tempted to indulge in a lake house or an expensive new car. Highs and lows inevitably come and go in the business world, but the financial obligations in your personal life will remain. Keep in mind that not every year will be profitable, and you’ll be on the hook for these types of purchases for years to come, no matter how your business is performing. Keeping sufficient funds in your business while also saving or investing on a personal level during the good years, can help minimize the impact of your obligations during less profitable years.
Finding ways to embrace your strengths while acknowledging your weaknesses as a business owner can limit the stress and sacrifice. Ultimately, sticking to some key best-practices as you launch your business will go a long way in freeing up space in your budget for savings and meaningful investments.
Westfield Bank is here to be a collaborative partner at every stage of your business journey – don’t hesitate to get in contact with our commercial banking team.