Managing personal finance for most business owners is inseparable from their business finances, especially in case of small and medium sized business owners. This alliance between personal and business finance is usually formed in the initial or the startup ages itself, and continues long after extensive diversification.

This unique situation results in some unique challenges in business owner’s personal financial management, though, many other challenges are much similar to those of professionals earning a regular salary. Some of the major challenges unique to business owners include:

• Lifestyle changes in correlation with business cycles
• Lack of thought on retirement
• No thought over succession of business
• Stability and continuity of family support in case of losses in business

While, many proprietary business owners have thought of flexibility in their lifestyle and maintain it as such, ask them of their retirement plans and their answers would be somewhat like these:

• Who says I’ll retire?
• My son will handle the business, and I’ll be simply less involved.
• The family HUF runs the business, it’s a going concern or
• “…Blank…” as they never thought of it.

In our country, where most established businesses are family owned, it is easily and obviously assumed that children will take over the business slowly and will look after if the owner retires.

All these issues including the common personal money management challenges can be looked upon and tackled differently based on the stage of business. These three stages are:

1. Startup Stage
2. Growth Stage &
3. Established Business Stage

Personal Finance Management at the Startup Stage
This is a perfect stage to start on the path of personal financial management along with the business. Incorporating the business in a way so that the risk and liabilities remain harmless for your family’s financial situation is the first step. Though, starting a business in the early age would be the make it a perfect combination of business and personal lifecycle, the same may not always be the case, so what if you happen to start a business in one of the later stages of your life? The first rule of startup applies - incorporate your business keeping in mind the business cycle and the type of risks involved.

For example, a retail store started at a later stage in one’s life can simply follow the proprietary ownership, but for those in the early stage would likely want to see their business grow and expand. One retail store may not have lot of risk but expansion will certainly bring more risk and income along with it, in such case it is better to start it as a private ltd. venture rather than a self-proprietary one.

How does it help in personal money management? Here’s your answer:

Later Stage of Life: Financial situation in later stage of your life is likely to be much better than those in an early stage:

• You probably have built some assets and have acquired a net-worth even if not substantial.
• You are likely to be the biggest investor in your venture.
• Sole proprietorship will give you much needed tax relief by treating you as an individual tax payer.
• Variations in your income will not affect your family’s lifestyle much due to the presence of other financial assets.
• Finally your dependents are most likely to be in the final stages of being settled in their lives, therefore, leaving your financial responsibilities back at home relaxed.

Early stage of Life: At this stage, most of the money you invest in the business is borrowed, and with very little equity of your own you have little coming out of it at this stage:

• Partnership or Private limited company comes as a best choice.
• As you may choose to derive a steady income from your company
• Employ some of your closest family members to help you take the establishment further and at the same time enhance the take home without being taxed at high rates
• Such structure allows you to expand your business the way you want and still retain much of the control over it.

For the businesses running in the growth stage or the established stage (inherited businesses and or business started earlier in your lifetime), the challenges are similar to those faced by salaried people climbing corporate ladder in their early stage of career:

• Increasing family responsibilities
• Pressing requirements at work
• Time is mostly spent in planning and executing business needs
• Less or no time to tend to personal financial matters

For those hitting this stage of business early in their personal lives problems will be multifold and with today’s fast paced environment, financial mistakes are more likely in spontaneous decisions. Therefore, involving a professional financial planner / wealth manager would be the best idea to work with for your personal financial management.

Personal Financial Management at Growth or Established Stage
Further for all business owners following golden rules will help in building their personal wealth without the aftereffects of the business cycle:

1. Keep Business and Personal Accounts Separate:
Being organized and disciplined may be tough, but business is one area where it really pays off well. Being organized is the first step towards it, and having separate business and personal checking accounts is a huge advantage in this case.

2. Minimize your tax liability:
Decide the most tax efficient compensation method in case of a limited company ownership. Get professional assistance for tax planning for business and start early each year for personal tax savings. Keeping your account books clean and advance planning will assist your transaction decisions in business. Advance planning for your personal tax savings will provide you enough time to save while your business inflows are higher and avoid last minute rush, including some bad decision making. Remember that early decision have exponential effect on your future financial position.

3. Build a contingency fund
We all want to be happily indulging in merrymaking during the good times, and during the bad ones we try to save even on the daily veggie purchases. As a business owner you would want to avoid this and decide on a contingency fund for your household expenses, including one for your business. Just keep them separate as discussed in the first suggestion.

4. Think and start saving for Retirement / Succession of Business:
It’d be great if your business can become your best retirement saving as it happens in the west, or more developed economies, in India it might still be a big turn off. The best thing to do is to start saving for your retirement while your business is running and growing. In case your plans are to ensure continued growth and function of business through succession, you need to start grooming the next person you would want to take charge of the business. Your children could be the best option but in case they have other plans there is no harm in grooming another key person for the job, while you maintain your shareholding (best for limited ownership companies).

5. Insure Yourself and Family Adequately:
Finally, the most important of it all Insurance, Life, health, accident and critical illness like contingencies can take a toll on your dreams and your dependents future by straining your finances. Best is to cover yourself and other key family members adequately though insurance policies for these risks.

6. Plan For Your Family’s Goals: Planning is an integral part of any business, especially at the startup age, but it is equally important for personal goals and aspirations regardless of the stage of business. This will provide you real sense of responsibility and will give a roadmap to achieve your goals objectively. The greatest benefit of planning is you will always know:

• How much you must save?
• What is your spending limit?
• Whether a short term aspiration hampers one of your responsibilities?
• How much you should target for in your business?

These six steps are not the limit of it but surely this will give your personal financial management a boost while you focus on running and growing your business.