How to Balance Personal and Business Finances for Success

Paying yourself consistently is part of the plan.

Reviewed by Hara Estroff Marano

Key points

• Personal and business finances are linked and impact each other significantly.
• Keeping finances separate helps protect your legal and financial interests.
• Regularly paying yourself is vital for maintaining personal financial health.
• Regular financial reviews empower informed decision-making and goal tracking.

For many entrepreneurs, managing both personal and business finances can be a daunting task. Personally, when I founded a large group counseling practice in the Chicago area, I made a thousand mistakes and ended up in cash flow hell. It took a lot of help from others, and some work on my own money mindset, to turn the ship around. I’ve made it my mission and passion to reduce the shame and stigma around financial stress and such related conditions as money anxiety and financially triggered PTSD.

One of my favorite experts on financial literacy is Melissa Houston, Forbes contributor and author of Cash Confident: An Entrepreneur’s Guide to Creating a Profitable Business. She has dedicated her career to helping business owners navigate the complex relationship between personal and business finances and developed strategies for maintaining financial health in both areas.

The Interconnection of Personal and Business Finances

"Your personal and business finances are like two sides of the same coin," Houston explains. "They’re interconnected, and the health of one often impacts the other." Many entrepreneurs struggle, she finds, because they fail to recognize the connection.

Houston emphasizes the importance of understanding how personal financial decisions can affect your business, and vice versa. "If you’re dipping into your business funds to cover personal expenses, or using personal savings to keep your business afloat, it’s a sign that you need to reassess your financial strategy," she advises.

The Importance of Financial Separation

One of the key principles Houston advocates is keeping personal and business finances separate. "It’s not just about staying organized—it’s about protecting yourself legally and financially," she says. Mixing finances can lead to issues with tax compliance and make it difficult to accurately track your business’s financial performance.

Houston recommends opening separate bank accounts for your business and maintaining clear records of all transactions. "This way, you know exactly where your money is going, and it’s easier to manage both sides of your financial life."

Budgeting for Both Personal and Business Needs

Budgeting is a crucial tool for managing both personal and business finances, and Houston is a strong proponent of maintaining distinct budgets for each. "A business budget helps you plan for expenses, manage cash flow, and ensure profitability," she states. "On the personal side, a budget helps you live within your means and achieve your financial goals."

She encourages entrepreneurs to regularly review their budgets and make adjustments as needed. "It’s about being proactive rather than reactive," she says.

Paying Yourself Consistently

One of the common mistakes Houston sees among entrepreneurs is failing to pay themselves a consistent salary. "It’s easy to justify reinvesting everything back into the business, especially in the early days," she acknowledges. "But paying yourself is important for both your personal financial health and your business’s long-term success."

Houston advises setting a reasonable salary for yourself and sticking to it, even during lean months. "This helps you maintain a clear boundary between your personal and business finances and ensures that you’re not relying on business funds to cover personal expenses," she explains.

Regular Financial Monitoring

Regularly monitoring both personal and business finances is another necessity. "You need to keep a close eye on your financial situation so that you can make informed decisions," Houston advises. This includes reviewing bank statements, tracking expenses, and assessing whether you’re on track to meet your financial goals.

Her simple yet effective process for monitoring your finances and making adjustments as needed: "It’s about being proactive and staying on top of your financial health, both personally and professionally," she emphasizes.

Seeking Professional Guidance

Managing personal and business finances can be complex, and Houston encourages entrepreneurs to seek professional guidance when needed. "There’s no shame in asking for help," she says. "A financial advisor or accountant can provide valuable insights and help you develop a financial strategy that works for both your personal life and your business." In fact, she notes, "having the right team in your corner can make all the difference."

Conclusion

By keeping finances separate, budgeting effectively, paying yourself consistently, and seeking professional advice, entrepreneurs can maintain financial health in both personal and business finances, ensuring long-term success in both.