How to Avoid Letting Your Personal Finances Hurt Your Business

by Kristopher Samuels Writer

They say you and your business are separate entities. However, there is no doubt that the financial condition of one will always bleed over into the other.

They also say that small business owners should pay themselves a salary. However, the reality is that only about 50% of the entrepreneurs actually pay themselves a salary. This means that there is a lot of muddy water when it comes to people personal and business financials.

Here is how to avoid it.

Know What Your Getting Into

A lot of people will go into business themselves after they have been fired or laid off. The new freedom gives them an opportunity to rethink what they want in life and finally pursue their idea or passion. Which is amazing!

However, if you’re coming a strained financial situation or bad credit, you should know that your personal credit will impact your business’ credit. So, a low credit score will hurt your ability to do things like lease a space, get a small business loan, or finance equipment.

Know Where to Get Help

In the cash-strapped early days, we know how hard it can be to avoid getting that first big payment from a customer and immediately putting the money towards groceries and rent. You need to avoid this mentality of thinking that the business’ money is your money.

This is why it helps to put yourself a salary as soon as possible. Don’t worry, you know the owner and you can negotiate for a raise when things really start to pick up.

That way you can keep things as separate as possible, and you can avoid “borrowing” money from the business to deal with a financial emergency. It’s better to have access to personal credit and to know where to borrow money online than it is to risk missing an important payment for your business.

Create Separate Account For Everything

The first and most important step will always be to make sure your personal and business’ finances are truly separate with separate accounts.

It will also be very helpful to hire a bookkeeper, or at least use a bookkeeping software to ensure you can pay business expenses with your business account, which is what will build your business’ credit score.

Build Your Personal and Business Credit Separately

Of course, success in one area will lead to success in the other. However, you need to monitor and track your personal and business credit scores separately.

For example, you really need to stay on top of your business credit score, because fluctuations can have a major impact on your day-to-day operations. In fact, the U.S. Small Business Administration reports that 33% of businesses’ credit scores may drop over just a three-month period.

That means that one day, life is good and you’re paying a certain vendor on a comfortable 30-day payment cycle. The day next, you now being asked to pay cash on delivery.

There’s no doubt that stress about your business’s financial state can bleed over into your personal life, and vice versa. However, the soon that you can draw a clear line between both entities, the less stressful things will be.