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Personal Finance Considerations for Small Businesses

Small business leaders have a responsibility that their corporate brethren do not. Planning a successful integration of business and personal finance is a challenging process that begins with an imperative to understand how the two types of finance are distinct and where they merge. To make informed decisions, business owners need to know how to balance resources between personal and business accounts, maximize liquidity for business investments and balance business goals with personal needs, including routine expenditures and long-term savings.

Graduates of the online Master of Business Administration (MBA) with a Concentration in Applied Finance from University of Illinois Springfield (UIS) program may choose to pursue the career path of financial advisor (also financial manager or investment manager). However, a knowledge of the intersection of personal and business finance is critical to success in this challenging and rewarding role.

How Personal Finance Relates to Small Business Finance

Credit makes the world go around, especially for small business owners who need to preserve solid personal and business credit ratings for fast and continuous access to capital. Mistakes in personal finance — such as late credit card payments — bleed over into a new business. This can make it challenging to develop new lines of credit under a business name. New business owners who understand debt-to-income ratios and stay ahead of due dates can create a solid foundation for personal finances.

Entrepreneurs must also learn how to invest profits back into their business and balance this need with saving for retirement and other financial goals. Investing in a business is not a comprehensive plan, though many entrepreneurs take this unnecessary risk, often with later regrets. Financial professionals can help entrepreneurs allocate strategically toward personal and business goals, maximizing tax advantages with savings plans, including SEP IRAs, for the business owner and any employees.

Planning Issues Entrepreneurs Struggle With in Financial Planning

Rather than reinvest all profits into a business, entrepreneurs are well advised to allocate a percentage of earnings to diverse investments in retirement accounts and other savings plans (such as college 529 plans). Investment options may include mutual funds, ETFs, stocks, bonds and real estate holdings. Financial advisors can help ensure diversification to offset risks during broad economic downturns and troubles affecting the entrepreneur’s industry. Advisors also provide guidance based on the business owner’s risk tolerance and expected retirement date. Expert advice empowers entrepreneurs to focus on the business with the peace of mind that comes from knowing their business and personal financial planning is solid.

Other critical financial issues that entrepreneurs often struggle with are succession planning for the business, financial organization of the company, estate planning and tax planning. Financial advisors can minimize estate taxes for the business and place beneficiaries in a stronger position to take control.

How Can Personal Financial Mismanagement Hurt a Small Business?

Much of what lies at the intersection of personal and business financial management for entrepreneurs falls within the area of risk management. Entrepreneurs need to prepare for what could go wrong with several types of insurance: life insurance, property and casualty insurance, personal liability insurance, disability insurance, supplemental insurance and health care insurance.

Similarly, failing to prepare for broad economic recessions or industry declines by economizing and maintaining access to credit or failing to prepare for business expenditures by learning to accurately project cash flow are common mistakes for inexperienced entrepreneurs. A knowledgeable financial advisor can help business owners understand personal and working capital, divide resources intelligently and make sound financial decisions for personal and business success.

How the Curriculum Equips Graduates to Help Small Business Owners

The UIS MBA with a Concentration in Applied Finance online program includes several courses that will prepare students to empower entrepreneurs to make optimal personal and business financial decisions. The program’s Personal Financial Planning course develops skills for making comprehensive financial plans in accordance with individual and household financial objectives that include return expectations, risk tolerance and liquidity needs. In this course, students learn to design, implement and monitor decisions in personal financial plans. Students learn to address the underlying psychological and behavioral aspects of personal finance in Introduction to Financial Psychology and Applied Behavioral Finance.

If you are interested in helping entrepreneurs better manage their personal and business finances, this is one of the many opportunities this MBA program can offer.

Learn more about the University of Illinois Springfield’s online MBA with a Concentration in Applied Finance program.

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