As couples celebrate their love and commitment, those starting a business together embark on an exciting yet financially demanding journey. The road to success in business can be rewarding, but without solid financial planning, it can create considerable stress on both the business and the relationship. While shared goals can strengthen their partnership, overlooking financial challenges can lead to tension, highlighting the importance of careful financial management from the outset.
Transforming financial challenges into growth opportunities is key to fostering both your entrepreneurial ambitions and personal harmony. Here are some crucial financial planning factors for couples to consider when starting a business together, according to an article from Money Control.
The power of separate emergency funds
Running a business is inherently uncertain, which makes having a financial safety net crucial. But here’s the catch: one emergency fund isn’t enough. Couples should create two separate emergency funds—one for personal expenses and another for business-related costs.
According to Amit Suri, founder of AUM Wealth, “Couples starting a business should first build an emergency fund to cover personal expenses, ideally three to six months’ worth. This will ensure you’re prepared for personal emergencies, even when business revenue is unpredictable.”
On the business side, Suri advises, “The size of your business emergency fund should depend on the nature of your industry. However, if your business faces delayed payments or is vulnerable to economic shifts, it’s wise to keep a reserve that can cover one to three years’ worth of expenses.”
To grow your emergency fund while ensuring liquidity, consider investing in debt funds. These offer a good balance between safety and moderate returns while still allowing easy access to your funds.
Priyank Shah, co-founder and CEO of The Financialist, further stresses the importance of disciplined investing. “Automating transfers to debt funds can help maintain steady contributions to your emergency fund. Regular portfolio reviews will also ensure that your savings strategy adapts to changing financial needs and goals.”
The need for separate finances
One of the most important steps in successfully starting a business together is maintaining separate personal finances. Keeping personal finances distinct from business funds helps safeguard your financial independence and minimizes disputes over expenditures.
Shah explains, “This approach ensures your personal assets are shielded from potential business risks. It also reduces the likelihood of financial disagreements, as both partners retain control over their individual finances.”
By maintaining clear boundaries between personal and business finances, couples simplify bookkeeping, tax filing, and liability management. More importantly, it fosters trust and transparency, which are essential for a healthy business partnership.
Decouple business profits from personal expenses
To prevent the unpredictable nature of business profits from interfering with your personal financial stability, consider setting a fixed salary for both partners. Drawing a regular salary helps create a clear distinction between personal income and business cash flow.
Suri recommends that couples “carefully determine a sustainable salary amount that allows both partners to live comfortably without draining the business’s finances or creating unnecessary stress on the relationship.”
The vital role of insurance
When starting a business together, couples must prioritize insurance to protect both personal and business assets.
For personal insurance, two key policies are essential: term life insurance and health insurance. Shah highlights that “term life insurance offers financial protection for your family in case of an unexpected tragedy, ensuring that your loved ones are taken care of during difficult times.”
In addition, health insurance is crucial to cover medical expenses without depleting personal savings. Shah suggests opting for a family floater health insurance plan, which offers comprehensive coverage for all family members under a single policy, making it a cost-effective option.
From a business perspective, insurance is equally important for mitigating risks like property damage, liability, or data breaches. Ankit Garg, CEO of Wealthy Nivesh, stresses the importance of covering these risks to secure the business’s operations.
Moreover, Suri advises that couples also consider “key person insurance,” which protects the business in case a key member (such as a spouse playing a vital role in the business) is lost unexpectedly.
The importance of retirement planning
As business owners, couples enjoy greater control over their financial future. However, this freedom shouldn’t mean putting personal financial goals on the back burner. Prioritizing personal goals like retirement planning, children’s education, or buying a home is crucial, even when navigating the challenges of entrepreneurship.
Suri advises, “Don’t neglect long-term financial planning. Set aside a portion of your salary for goals like retirement or saving for a home based on your risk tolerance and investment timeline. Regularly review and adjust your financial plan as needed.”
By allocating funds for personal goals while growing the business, couples can secure a stable financial future, balancing both professional ambitions and personal well-being.
Solid financial foundation
Starting a business together can be one of the most rewarding experiences for a couple, but it requires careful financial planning to ensure long-term success. By building a robust financial safety net, maintaining separate finances, securing adequate insurance coverage, taking advantage of tax benefits, and safeguarding personal financial goals, couples can protect their business and strengthen their relationship. Both partners can thrive in their entrepreneurial journey and personal lives with a solid financial foundation.