When starting or even growing a new business, there will be times when you will need the support and understanding of your significant other when it comes to personal finances.
I have always said, “Your personal spending is inextricably linked to your business finances.” Therefore, if you are in a relationship, then it is so important your partner understands the constraints your business financial needs place on you both.
Here are 6 useful ways to help get your “other half” on your side when it comes to cutting back to leap forward in business.
1. Create a personal budget together.
By working on the figures together you provide a forum for discussion which is framed around what you can afford to spend on a monthly budget. This collaboration provides a more proactive approach to spending.
Working on a budget together allows you to discuss what you both need in terms of income from the business (i.e., money paid directly to you as drawings or dividends).
Start with a survival budget as this is normally required during the early startup stage. You must conserve as much cash as you can.
As your business grows progress to a more comfortable budget which includes elements of discretionary spend to support some of the lifestyle choices you enjoy.
Then finish with a high-side budget; an idealist look at what you are aiming for to be fully satisfied.
If you are a lifestyle entrepreneur, you may have other motivations for running your own business, so aiming for a targeted level of earnings may be ideal. The key thing to remember here is that you need to start off knowing the monthly budget level you plan to meet. With this in mind you can both proactively manage your spend to these levels, until your business grows and you are able to move to the next level of personal spending.
2. Consider what you can (or can’t) do without.
This applies to your personal expenditures. Mutually agreeing to the areas you can do without and for what period of time will prevent future misunderstandings. Perhaps this may include no or low-cost holidays for a period of time. This could also include less discretionary spend on home improvements, entertainment, and expenditures on the kids.
Whatever you decide, just talking this through and quantifying it will enable you to work towards your goal without feeling hindered by unfair constraints on your personal and family lifestyle.
3. Set a fixed amount for draws.
It is not only important to agree what the fixed budget should be for spending but also, how this can increase based on time (and sales growth). “A regularly scheduled payment from the business account to the owner(s) helps to establish a clearer picture of what the company costs to run.”
Fixing a budget for how much you can contribute to the household pot prevents vagueness from being introduced into the equation. Hence, when the money runs out in the personal pot, the spending will have to stop.
This removes the negotiation on spending and allows you the time and headspace to work on growing your business. During times of increased restraint, you will need the full support of your significant other. You will feel enough stress from managing your business finances, so it is important that your personal finances are not also causing you worry.
4. Don’t try to get your partner too involved.
Instead, just explain the simplest metric … show the relationship between your available drawings from the business versus the business sales. You may need to work this out and express it more based on how long it will take you to reach a certain level of sales.
Trying to engage your partner in business finances maybe too overwhelming (and probably unnecessary) at first; especially if they are not involved in daily operations of the business.
5. Use payback to explain the need for additional reinvestment.
One of the biggest reasons for a lack of buy-in, is where your spouse feels that you are wasting your money on buying more for your business when personal spending is so low. Trying to demonstrate how funds can be found, often from releasing cash in different areas, takes away the feeling that you are spending your hard earned money on shiny new business objects.
For example, I recently spoke to a woman who is trying to expand her sewing and alterations business. She wanted to buy an additional machine which will enable her to embroider logos onto her products (thus giving them uniqueness and further product differentiation).
She believed she would find the money from reducing personal spending in a different area and it would pay back in 3 months. Furthermore, she could show how the investment would increase her profits and income by month 3.
6. Celebrate small financial wins.
This helps to keep morale up. It is difficult for everyone when personal expenditure needs to be cut back. Small celebrations like a nice bottle of wine or date night can break the feeling of doom and gloom.
As an entrepreneur starting or growing a business, it can feel pretty lonely at times. Try to ensure you have support from your other half by proactively managing your dialogue.
Financial management is a personal and often a contentious area of conflict for any couple. If you can get the buy-in and support you need early on and throughout the leaner times, you have more chance of keeping going and building the business you dream of.
This article has been edited and condensed.
Hayley Chiba is the Director and Owner of Better Numbers Limited, a niche financial management company that works exclusively with growing small businesses. She specialises in providing solutions to cashflow and financial management problems through 1:1 consultancy and online courses. Connect with @betternumbers1 on Twitter.