Balance Personal and Business Finance for Canadian Small Businesses

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    28 Nov 2023
    Are you a small business owner struggling to balance personal and business finances?   Entrepreneurship is dynamic! As a small business owner, the need for capital and the challenges of managing small-scale operations may tempt you to use your personal finances from time to time, to cover the revenue shortfall. However, what may seem like the easiest option initially can spiral into financial mismanagement.  Once the financial mismanagement gets out of control, the downfall of the business is rapid and difficult to recover from. Don't let your financial woes hinder your entrepreneurial dreams. Read our comprehensive blog that will help you learn how to manage small business finances and all the basics you need to know. It’s time you get back on your entrepreneurial goals!  Also, don’t forget to book a chartered professional accountant with our free 30-minute consultation. Get a break from handling all that financial stress!

    Difference Between Personal And Business Finance

    Personal and Business Finance Both personal and commercial financial planning have the same elements: budgeting, taxes, investments, and strategic objectives. However, there are a lot more things that make them different.  If you are someone just getting along with a new startup, here are the differences you need to know: 
    • Simplicity and complexity: Business finance is a lot more complex. Finance in business requires accounting, risk management, forecasting, and departmental budgets among other things.
    • Taxes: Filing income taxes is primary in personal taxes. In small business though, one must adhere to relevant local, state, and federal laws and regulations. They have to take care of income tax, Employment tax, Excise tax and more. 
    • Managing Several Streams of Income: Having many streams of income is beneficial both on a personal level and for a business. Administration and monitoring it on a personal level isn’t complex. However, when doing it for a business, they have to keep track of their finances and organize their fiscal plans around different revenue streams, including investments, rent, subscriptions, and passive income.
    • Investments: In personal finance, investments are meant for a secure future or acquiring an asset. In business though, it means growing the business and increasing profitability. The use of leverage and shorter time horizons for business investments is another major difference.
    To balance personal and business finances, one has to get the difference between the two of them first. Now that it's clear, let’s discuss the mistakes we need to avoid. 

    Common Mistakes to Avoid When Balancing Personal and Business Finances

    Common Mistakes of Personal and Business Finance   Income volatility, limited access to capital, and lack of financial literacy can make business owners commit certain mistakes that make their financial situation from bad to worse. So, for small business owners in Canada, the struggle to balance personal and business finances is real.  We’ve compiled a checklist of common mistakes that you can handy when you sit down and assess your business:
    • Not keeping separate financial accounts: ALWAYS keep separate bank accounts and credit cards for your business and personal finances. With this, you’ll track spending and income easily, while also protecting your personal assets against business lawsuits.
    • Using business funds for personal expenses: Despite all the temptations, don’t use business funds for personal expenses, as it will blur the lines between your personal and business finances, leading to more financial problems down the road.
    • Not paying yourself a salary: Are you a sole proprietor? If yes, then pay yourself a salary to track your income and expenses. Also, it will ensure that you're being paid fairly for your work.
    • Having No Budget: How would you manage your personal and business finances when you don’t have a budget? So, by creating a budget, you can track your income and expenses and make sure that you're not overspending.
    • Not Saving For Taxes: Self-employed Canadians are mandated to pay quarterly income tax installments. People often don’t set aside money each month to cover their tax payments. Start doing it!
    What You Should DO: Claim those eligible business expenses, use government programs and tax breaks, purchase a business insurance policy, and have a retirement plan.

    Reorganize and Balance Personal and Business Finances: A Step-by-Step Guide

    Business and Personal Finance Guide   It's not just about numbers, but about savvy decision-making and strategic moves. To get you started, we’ve suggested some corrective steps you can take to improve your capacity to manage your money responsibly.

    Set Priorities For Your Financial Objectives

    To manage your money, pay down your debts and grow your business, you need to set both short-term and long-term goals.  These goals should be aligned with your overall business strategy so that everyone is working towards the same thing. You also need to create a financial plan that will help you track your progress and make adjustments as needed. By setting clear goals, aligning them with your strategy, and managing your resources responsibly, you can achieve future success and solve problems creatively. Also, you must keep your business bank account and credit card separately to track your expenses accordingly.

    Consider Analyzing Your Present Financial Situation

    A good financial plan can help business owners succeed.  By carefully analyzing their finances, businesses can find their strengths, fix any problems, understand their financial situation better, and plan for the future. This includes looking closely at their cash flow, profit and loss, bills, and payment statements. Don’t forget the importance of setting financial goals for both your personal life and your business. This will help you to stay motivated and on track with your financial planning.

    Use Insurance To Safeguard Yourself

    Insurance to Safeguarde Yourself   Insurance is a critical element of financial planning for small businesses. Why? Because it provides protection and peace of mind in the case of unplanned events such as accidents, lawsuits, or natural disasters.  Thus, for many, It may be tempting to forgo insurance as an unnecessary expense when they are first starting out a business. However, the cost of not having insurance can be devastating, even leading to bankruptcy. Insurance is an investment in the future of both you and your business. Finally, it is important to diversify your investment portfolio to reduce risk and protect your wealth.

    Smart Budgeting

    Careful financial planning and accurate cash flow forecasting are crucial for you to ensure a strong financial future. This allows you to make smart decisions about how to manage your money, grow your business, and invest. You also need to create a realistic and achievable budget for your business and track your expenses. It will help you to ensure that you are spending your money wisely and that you are on track to meet your financial goals.

    Final Words

    Learning how to balance personal and business finances is crucial for every small business owner.  Remember, it's not just about numbers; it's about strategic decisions and financial discipline that pave the way to financial success. Are you looking for a CPA in Surrey Canada for small business accounting? CJCPA can help! With a combined experience of 30+ years in Canadian taxes, compliance, and finance, we are helping small businesses in hospitality, construction, pharma, and other industries become financially stress-free with expert consultancy and financial services.  Subscribe to our newsletter to get more such small business finance tips right in your inbox.
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