When it comes to being your own boss, with your own business, the ups and downs abound. Often, the positive and not-so-positive aspects of entrepreneurship are not only interrelated, but they also have a significant impact on your personal finances.
Whether November being National Entrepreneurship Month has you thinking about taking the plunge and becoming an entrepreneur, or you’re already working for yourself and your finances need some extra attention, here are three realities that business owners face — and how to navigate your personal finances like a pro amid the juggle that comes with the job.
Income potential — and fluctuations. As your own boss, you may think, your pay will (finally!) reflect your efforts. The more time, energy and attention you put into getting clients, delivering value and growing your business, the more you will make. While that is often true, there are many factors that you may not be able to control. Clients may be slow to pay, expenses could vary from month to month, you may be inundated with business at certain times of the year and in a drought during others, and more. Your income is likely going to ride that roller coaster as well. This is where it can be helpful to work with a professional, like an accountant or financial advisor, who has in-depth experience advising entrepreneurs. They can help you get an idea of the big picture, identify patterns in cash flow and expenses, and plan in advance for inevitable personal income fluctuations. Additionally, an accounting professional can help with tax compliance and monthly reporting, both of which help your business run smoothly and grow over the long term.
Blending work and home. Making your own schedule and working where it is convenient are common signs that you’ve achieved entrepreneurial freedom. However, as a business owner, you may also have work schedules that are sometimes unpredictable. If you work from home at least part of the time, you may start to feel like work and home life blend a bit too much — including financially. Be sure to keep your personal and business finances distinct from one another, including separate accounts, credit or debit cards, and itemized income and expense records for each one. Again, financial and tax professionals can help here. Also consider finding ways to help separate work and home so you get a mental break; whether it’s a dedicated space where you conduct business, which can help come tax time, or a commitment not to do home-related chores during set work hours.
Savings and investments. Saving for a rainy day, or for retirement, also looks different as an entrepreneur rather than an employee. Typically, when you work for a company, you get benefits such as an in-house 401(k) plan, often with a matching contribution, that incentivizes you to save for retirement. As an entrepreneur, you will need to motivate yourself to save proactively. According to a recent survey, 34 percent of entrepreneurs don’t currently have a retirement savings plan. To avoid being included in that statistic, do some research online and consult a financial advisor to find a retirement savings plan that is right for you. With proper planning, options like simple IRAs (individual retirement accounts), SEP-IRAs and 401(k) plans, you could put an enjoyable, financially secure retirement within your entrepreneurial reach.
The joys of being your own boss are many – the sky’s the limit! Georgia currently ranks number three in the U.S. for ease in starting and growing a business. And though you are in business for yourself, you don’t have to do it by yourself. Reach out, as needed, to financial professionals who can help you navigate the many aspects of being an entrepreneur. In the meantime, enjoy the process.
Kristen Fricks-Roman is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Atlanta. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor. Morgan Stanley Smith Barney, LLC, member SIPC. CRC 2235406 09/18
Responses