Is your Business Balance Sheet hurting your personal Balance Sheet?

As a small business owner, you're likely familiar with the importance of keeping your business's balance sheet in good health. Here are a few ways in which your business balance sheet could be hurting your personal balance sheet, and what you can do about it.

1. Personal guarantees on business loans

When you take out a loan for your business, you may be required to personally guarantee the loan. This means that if your business is unable to repay the loan, you'll be personally responsible for repaying it. This can put your personal assets, such as your home or car, at risk if your business fails to generate enough income to repay the loan.

To protect yourself from this risk, it's important to carefully consider the terms of any business loan you take out and only take out loans that you're comfortable personally guaranteeing. Additionally, you may want to consider alternative financing options, such as equity financing, that don't require personal guarantees.

Matthew Feehan is our Business advisory specialist, for assistance please feel free to contact us today.

2. Mixing personal and business finances

Another common mistake that small business owners make is mixing their personal and business finances. While this can make it easier to manage your finances in the short term, especially through the start up phase, it can also make it more difficult to track your expenses and can lead to tax complications down the road.

To avoid this, it's important to keep your personal and business finances separate. This can be achieved by setting up a separate bank account for your business and only using it for business-related expenses. Additionally, you should keep detailed records of all business-related expenses, including receipts, invoices, and bank statements. This is often easier to control with a bookkeeping software such as Xero.

To learn more about how we can assist please contact us for specialist assistance with Xero.

3. Neglecting your personal financial planning

Running a business can be all-consuming, and it's easy to neglect your personal financial planning in the process. However, neglecting your personal finances can have serious consequences, including not being able to exit the business at your choosing.

To avoid this, it's important to make time for personal financial planning, even if it means delegating some of your business responsibilities. This can include creating a budget, saving for retirement, and paying off any high-interest debt. Additionally, you may want to consider working with a financial advisor who can help you create a comprehensive financial plan that takes into account both your business and personal finances.

 Steve Landers and Ben Waite are our Financial Planners and can assist with any inquiries. Please click here to contact them.

4. Decreasing your Business Value

Without understanding how and when you would like to exit the business, and having an understanding of what the value of the business needs to be to facilitate the exit, some business owners are forced to close the business or sell for a reduced value. By working through a succession plan, increased value of the business can be achieved by ensuring its long-term viability and stability, making it more attractive to potential buyers or investors. This can also assist with minimising the tax impact of this event.

 Please click here to contact Matt Feehan for any future information regarding your business value.

In conclusion, a business succession plan is a crucial tool for business owners to ensure the long-term success and stability of their business, as well as to plan for their own future and financial security. Your business balance sheet will have a direct impact on your personal finances. It should be an asset that is allowing you to get the most out of life financially and personally. By taking steps to protect yourself, such as carefully considering loan terms, keeping your personal and business finances separate, seeking personal financial planning, and having a strategy in place for your business well before you want to exit, you can help ensure that your business success doesn't come at the expense of your personal financial wellbeing.