Personal finance is not something we learn in school. Many entrepreneurs don’t understand the impact of their personal financial situation on their business, but the truth is that they’re solidly entwined. If you’re thinking of starting a new business, it’s essential that you maintain good personal financial habits, especially during the start-up phase.
Learn from Others
Smart business owners learn from the mistakes of others. Keep your personal finances in tip-top shape, and that will reflect well on your business. Let your personal financial situation fall apart, and it often means the demise of the business as well.
Here are a few personal finance mistakes to avoid. They can easily sink the ship if you’re not paying attention.
Poor Credit Score
You don’t have to worry about your personal credit score, because that’s separate from your business, right? Wrong! Most entrepreneurs operate as a sole proprietor or an LLC. In either case, the owner’s credit score has a direct impact on the company’s ability to meet the financial needs of daily operations. Business loans, personal loans, company credit cards, and sometimes even insurance rates are all dependent to some extent on the owner’s credit score. The higher the score, the easier it is to get low-interest loans and the best insurance rates. This saves money over the long haul. A low credit score, on the other hand, may cripple the business with high interest rates and an inability to access more capital when needed.
No Emergency Fund
Owners who start a business with no emergency fund are asking for trouble. Entrepreneurship is risky in the best of times, and having funds set aside to handle an unexpected situation gives you a little breathing room when things get tight. This foresight could mean the difference between the success and failure of the business. It’s best to set aside three to six months of operating expenses to hold you over in a crisis. That’s usually enough time to get the business back on its feet.
Not Separating Your Money
One of the most common mistakes entrepreneurs make is not separating business income from personal funds. While many business owners have to use personal funds to get the business up and running, once revenues start flowing in, they should be deposited in a separate business account. If the company’s revenue is put in the same account that you’re paying the mortgage, utilities, and the kids’ college expenses from, you’re setting yourself up for potential accounting nightmares in the future.
Adams Accounting Solutions Specializes in Small Business Start-Ups
One of the best ways to ensure that your new business gets started on the right foot is to have the help of accounting professionals. Adams Accounting Solutions specializes in small business accounting. We can help you establish good financial practices – both business and personal – from the very beginning. We’re invested in your success as much as you are. Give us a call today to schedule an appointment to learn more.
