Most small business founders understand that it makes sense to create a personal investment portfolio apart from the investment in their own firms. But, that's often easier said than done. In reality, operating a small business can require years of risk and hard work.
Typically, a business owner or executive may be putting most, or all, of their profits back into the business, leaving little or no time for planning personal finances. So, what can you, as a business owner, do to help make sure your personal finances receive some much needed consideration?
First, it's important to tighten management and accounting operations in your company. Building up these areas can surely help make your business financially healthier and allow you more flexibility with your business capital. In addition, if you are like many small business owners and executives, you most likely have a substantial amount of your personal wealth tied up in or loaned to your business. Thus, it is important to keep your personal investments from those of your company.
How you handle your personal investments will depend on your individual needs and goals. However, most entrepreneurs share two priorities in portfolio management: liquidity and diversification. Having an adequate amount of liquidity can help allow for greater flexibility and may more readily enable you to take advantage of new business opportunities. Diversification is just as important to help manage your portfolio's risk. By varying your investments, you may be able to reduce the effects a decline in a single holding may have on your overall portfolio. However, although it can help minimize risk, diversification cannot eliminate the possibility of investment loss.
Ultimately, one of your primary goals (besides running your business) should be to take as much control of your portfolio as possible. The following steps can help you develop a more complete savings and investment strategy:
1. Keep your business and personal finances segregated.
2. Save a predetermined amount weekly or monthly.
3. Diversify your investments with a wide variety of accounts such as mutual funds, equities, annuities, and bonds.
4. Buy suitable insurance to protect you and your family (disability, life, nursing care, etc.)
5. Have access to readily available cash.
6. Keep up to date on your progress and keep records.
Long-term business planning and budgeting are critical to the ultimate success of your company. At the same time, developing a long-term, personal financial plan and investment strategy is equally critical for the financial success of you and your family.
Typically, a business owner or executive may be putting most, or all, of their profits back into the business, leaving little or no time for planning personal finances. So, what can you, as a business owner, do to help make sure your personal finances receive some much needed consideration?
First, it's important to tighten management and accounting operations in your company. Building up these areas can surely help make your business financially healthier and allow you more flexibility with your business capital. In addition, if you are like many small business owners and executives, you most likely have a substantial amount of your personal wealth tied up in or loaned to your business. Thus, it is important to keep your personal investments from those of your company.
How you handle your personal investments will depend on your individual needs and goals. However, most entrepreneurs share two priorities in portfolio management: liquidity and diversification. Having an adequate amount of liquidity can help allow for greater flexibility and may more readily enable you to take advantage of new business opportunities. Diversification is just as important to help manage your portfolio's risk. By varying your investments, you may be able to reduce the effects a decline in a single holding may have on your overall portfolio. However, although it can help minimize risk, diversification cannot eliminate the possibility of investment loss.
Ultimately, one of your primary goals (besides running your business) should be to take as much control of your portfolio as possible. The following steps can help you develop a more complete savings and investment strategy:
1. Keep your business and personal finances segregated.
2. Save a predetermined amount weekly or monthly.
3. Diversify your investments with a wide variety of accounts such as mutual funds, equities, annuities, and bonds.
4. Buy suitable insurance to protect you and your family (disability, life, nursing care, etc.)
5. Have access to readily available cash.
6. Keep up to date on your progress and keep records.
Long-term business planning and budgeting are critical to the ultimate success of your company. At the same time, developing a long-term, personal financial plan and investment strategy is equally critical for the financial success of you and your family.