Review the typical challenges of balancing your personal and business finances over time.
What kind of balance do you want? Are there things besides your business you want to accomplish and enjoy? If you overstretch your personal finances to support your business, or mix your personal and business finances inappropriately, you may expose yourself to personal financial liability and loss.
Early years risk: Overextended
In the early years you work hard to successfully establish your business, devoting time, effort, and financial resources. You may take a tiny salary, borrow against your personal credit, and find yourself working 14 hour days. The major risk is that you’ll overextend yourself financially.
Later years risk: Low $ reserves
Once your business begins to generate cash flow and become profitable, instead of you supporting your business, it begins to support you. The danger here is that you draw out too much, hampering your ability to grow and leaving reserves too low to handle challenges and downturns.
Balance point: ROI for time and effort
Money isn’t the only thing that you invest in your business. As your business matures, think about the time and effort you continue to invest. Consider to what extent you want to remain personally involved in your business over the long-run. Are you getting a good return on investment (ROI) of time and effort?
There are no simple answers for achieving the right balance. In the early years, consider how much financial risk you can afford to take; in the later years, quantify the amount you want to draw out to meet your wealth building goals — without putting the future of the business at risk.
See the lesson Selling or Transitioning for more about maximizing your return on investment.
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