The Difference Between Your Personal and Business Financial Planning

July 25, 2022 The Citizens State Bank Team

The Difference Between Your Personal and Business Financial Planning

When it comes to managing money, there are a number of similarities and differences between personal and business financial planning. The commonalities include creating budgets, paying taxes, investing, and establishing strategic goals. While we could cover why these areas are important to both, it’s equally important to highlight how these two crucial planning practices differ. As a business owner, it’s in your best interest to engage in both personal and business financial planning. Let’s walk through some of the most important categories to consider.

As a general rule, business financial planning tends to be more complex. Unlike financial planning for you or your family, planning for your company involves more people, different tools and technology, and considerations that aren’t necessary for personal finances—such as payroll and inventory management.

We would be remiss not to mention early on the importance of keeping a clear line of delineation between your business and personal finances. Muddying the two, even accidentally, can lead to massive headaches - and perhaps even legal issues - when preparing taxes, making major purchases, or even entertaining acquisitions and mergers.

Difference #1: Simplicity and Complexity 

While it may be necessary to spend significant time managing your personal finances, business financial planning typically requires a bit more attention to detail. Here’s why: it’s more complex. Your business budget isn’t a simple list of line items. You have to consider accounting, risk management, projections, department budgets, and more. Plus, not conducting the right kind of financial planning for your business can come back to haunt you.

Now, it’s also important to call attention to the fact that financial planning can be an overwhelming and confusing process. We speak with business leaders from a variety of industries and the one takeaway in this area is to create a cadence of practices and utilize frameworks to simplify the complex. That may include investing in technology or resources inside the online portal of your bank. Or, it may also incorporate frameworks like Profit First and EOS (Entrepreneur Operating System) in an effort to transform big goals into weekly rhythms that aid in achieving those objectives.

No matter what tools and frameworks you use to plan, it’s important that you have the right team in place to consistently execute these key functions.

Ready to take your financial planning to the next level? 

It might be time to check out our business resource hub and schedule a free consultation to assess your cash flow or current commercial loan.

Difference #2: Taxes

Taxes are an obligation for individuals and businesses. But for personal taxes, there is one primary tax to keep in mind—filing your income tax. As a small business owner, though, your financial planning and tax preparation need to comply with local, regional, and federal laws and regulations. Here are three focal points that differ from the personal tax realm:

Income Tax

The amount set aside for your business earned during a calendar year.

Employment Tax

The amount set aside for Social Security and Medicare for your employees.

Excise Tax

The amount imposed on various goods, services, and activities. This is largely dependent on the kinds of products you sell and type of business you operate so be sure to consult a tax professional during your planning.

The key for every business we speak with throughout Central Indiana and beyond is to plan, prepare, and organize in a way today that positions you for success tomorrow. Doing this regularly keeps tax season stress-free for you and your team. Additionally, this will help you accurately assess your business’s growth.

Difference #3: Multiple Income Streams

Your company may acquire income in multiple forms. It’s a sound strategy to diversify income streams across multiple products and services so that your company isn’t reliant on only one core offering. Whether it’s passive income, monthly subscriptions, rent, one-time services, investments, or even ongoing engagements, it’s essential to monitor, track, and plan your financial goals and practices around your collection of income streams.

In contrast, while it’s a solid practice to have multiple personal income streams, the way you track, plan and forecast those personal endeavors is not as highly regulated in many cases.

Difference #4: Investments

While investments are important across both personal and business financial planning, the subtle differences are important to note. Both realms incur expenses. It’s a given for doing business and living. However, businesses must view expenses as an opportunity to invest in something that will provide a return.

When it comes to investing, business owners would be wise to use the strategy of leverage.

Leverage is often defined as using borrowed funds to invest that money to gain potential returns. It can also refer to the debt that a business incurs to finance assets. Leverage, for business owners, should expand a business’s buying power. When done correctly, using leverage to access capital can greatly support your small or medium-sized businesses.

Now from a banking perspective, we would be remiss not to mention two crucial parts to leverage— debt and equity. If your debt-to-equity ratio is low, it’s a sign of a healthy business. This sort of intentional financial planning allows relationship managers from your preferred banking institution to provide easier access to needed capital.

Request Your Financial Planning Assessment

Here at Citizens State Bank, we realize the correlations and differences between your personal and business financial planning. Both are important and require unique approaches, frameworks, and a team you can rely on.

During this complimentary assessment, we will cover your billing and payment capabilities, the health of your cash flow, lines of credit, and any specific challenges or questions you face.

We’ve been navigating this journey with business owners since 1873, and offer a variety of resources to help your business grow whether you bank with us or not. If you are ready to maximize your business financial planning to achieve your most important priorities, let’s have a conversation.

Financial assessment

The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.

Share This: