Business Vs Personal Finance In The World Of A Small Business Owner: The Similarities, Differences And Influence
One of the first pieces of advice small business owners often get is to separate their business finance from their personal finance. In fact, neglecting to separate their business and personal finance accounts is one of the most commonly cited mistakes small business entrepreneurs tend to make. Fundera’s Have You Ever Used Your Business Credit Card for Personal Expenses survey showed that 23 percent of small business owners admitted to mixing personal and business purchases on their commercial credit cards. With experts and professional advisors continuing to warn against the implications of mixing the two, it helps business owners to understand the interwoven relationship that exists between them, including their similarities, differences and impact on each other. With a clearer understanding of personal versus business finance dynamics comes the knowledge and ability to make better choices in both departments.
The Same Financial Habits Can Apply In Both Worlds
Most of the recommended financial habits for attaining financial success in your personal life can lend themselves well to the financial management aspect of your business – with a few tweaks. Budgeting continues to play a key part in maintaining financial control in both worlds. At home, budgeting your personal funds effectively opens up the door for self-financing your business. The perk of this choice is, of course, the removal of repayments and interest rates. It also plays a part in the continuity of your business. Knowing how to manage your money in your personal life helps you control your finances in your business, including making smart purchasing decisions and matching your expenses against your income to avoid a loss.
Your Personal Finance History Can Determine Your Business Finance Cost And Decisions
As a small business owner, lenders will consider your personal credit file when you apply for a business loan. This is because most small businesses tend to have unlimited liability, meaning lenders will look to your personal assets to recover any losses or payments if your business is unable to service its debts, including outstanding loan repayments. Therefore, your personal finance habits, including your credit repayment and management tendencies (or any missed payments) will be taken into account during your application for a business loan. A poor credit score or report may mean that your chances of refusal are heightened, or in some cases, the cost of your loan is increased. Lenders may view you as a higher risk, and a higher interest rate would act as compensation for this.
Personal Finance Management Is Key In Mitigating The Spillover
However, downfalls in your personal financial life do not always have to spell the end for your business finance. The key to preventing or repairing the impact lies in the practice of good personal financial habits, including taking steps to improve your personal credit rating and taking control of your outstanding debts. On the individual front, be sure to keep updated on your credit report in the lead up to any credit applications, such as credit cards and small business loans. If you have any outstanding debts that may have been passed onto a collection agency, or missed payments, these can be dragging down your credit report. In the case of debt collection agencies, including The Debt Collection Agency, Roma Murphy & Horwitz, or the better-known Midland Funding Agency, it is important that you get your debt validated and the companies removed to improve your report. If you are wondering how to remove Midland Funding from your credit report, it is always recommended to communicate in writing for verification purposes, and if in doubt, enlist the services of a professional credit repair firm.
Taking steps to begin the separation of your personal and business finance can also help you reduce the effects, and protect yourself and your business in the future. This means creating (and sticking to) separate expense and income accounts for your personal and business world. You can also consider the option of setting up your business as a limited enterprise.
The crossovers don’t end here. Whether is it your credit score, debt or tax implications, your personal finance choices have a direct impact on your business finance, now and in the future. As a small business owner, it is even more important that you practice good financial discipline in both parts of your life to minimize any negative effects. By doing this and separating the two, you stand a better chance of achieving financial success and balance in both worlds.