They say keep your personal and professional finances separate; however, in the beginning, stages of starting a business, the two intertwine. Your savings or income cover business expenses, your credit history, and score are evaluated when you apply for a loan or line of credit, and your finances take a hit if your company doesn’t succeed. As the financial obligations for an entrepreneur are plentiful, you must put yourself in the best position to prevail. Continue reading to learn more.
Break Poor Financial Habits
Entrepreneurs have a lot of financial responsibilities. Ultimately, if you don’t manage personal finances properly, you’ll probably make the same mistakes with your business. Although you can outsource or hire an expert to manage company finances, the final decision on everything from fundraising and budgeting and saving and investing is yours.
If you’re going to handle your financial responsibilities effectively, you have to clean up your act. If you’re guilty of not budgeting, failing to save, making impulsive purchases, or not handling your taxes efficiently, it’s best to work on these areas of weakness before starting a business.
Improve Your Credit Score
Acquiring everything from loans or lines of credit to commercial property and utilities requires a satisfactory credit rating. Although you and your business are separate entities, your business has no credit before launch. Essentially, lenders, creditors, and service providers will use your credit score and history to determine eligibility and risk level.
If you don’t have an upstanding credit history and score, obtaining things you need to start your business will be impossible, if not expensive. If you are approved, you may be required to pay more in interest or put down a larger deposit. Therefore, working on your credit score is a must. If you don’t have any credit, you can apply for a secured credit card or use installment loans to build credit. If your credit history reflects too much debt, late payments, or collection accounts, you want to clean things up to improve your score over time.
Build a Nest Egg
A rainy day fund isn’t just for your household expenses; it’s also essential for your business. If you experience a financial emergency in the workplace, you need a financial source to tide you over. Whether sales drop for several weeks or the equipment malfunctions, it’s your responsibility to cover the costs. As pulling money from a personal account can cause issues at home, entrepreneurs should have an emergency fund for their businesses.
Determine how much money you’ll need each month to operate your business. Since it’s ideal to have at least three month’s worth of expenses in savings, this is your starting goal. Then, determine ways to set money aside until you’ve reached that goal. It may mean working your full-time job a little longer, getting a side hustle, or reworking your household budget to find extra cash.
Separate Your Finances
Although your personal and professional finances have some impact on each other, keeping them separate is easier. It makes everything from creating a budget to filing taxes more manageable. It also reduces personal liability in a lawsuit or consumer complaint.
Create a separate checking and savings account for your business. These accounts should be used for all business-related purchases and financial transactions. If, for some reason, you need to use personal funds to cover a business expense, transfer the funds into your business account first for efficient recordkeeping.
There’s more to starting a business than having a good idea. Financial management is at the forefront of those elements. If you’re going to succeed, you must first evaluate your finances and improve where necessary, clean up your credit history, build a nest egg, and finally separate your personal and business finances. Though these steps may delay the start of your company, they’ll ultimately reduce your risks and ensure you’re ready to handle your financial obligations.
Founder Dinis Guarda
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