You’re an entrepreneur that’s in the process of turning your brilliant idea into a reality. Soon enough, you’ll have your new business up and running!
This is great. Before that business comes to fruition, you need to learn the one financial rule that every entrepreneur should follow: don’t mix your personal and professional finances.
Mixing Personal and Professional
Once you’ve opened your business, you’ll have to manage two types of finances: your finances and the business’s finances. Unfortunately, since you’re the creator of your business, it’s all too easy to blend these two finances by using your credit card to make business transactions. This bad financial habit can come with many consequences that you’re better off avoiding.
What could go wrong?
- You could have trouble tracking expenses and bookkeeping
- You could have trouble accurately filing taxes
- You could disrupt your budget
- You could rack up a high balance on your consumer credit card
- You could upend your financial stability
- You could upend your business’s financial stability and lead to its failure.
Managing Your Business’s Finances
You know you can’t use your finances to cover your business expenses without jumping into trouble. You have to set up separate accounts for the business. What accounts should you get?
A Business Credit Card
You can start by applying for a business credit card. A business credit card is not the same as a consumer credit card. Instead, it’s a credit tool specifically designed to aid with business transactions, and it helps owners develop their business credit score.
A business credit score is different from a consumer credit score. Most business credit scores give ratings between 0-100, with the highest numbers being considered the best. A good score can help you access better terms for essential loans, insurance policies, and even vendor deals in the future.
A Business Savings Account
You should set up a savings account to collect and store your business’s savings. Please do not touch them for personal reasons. This savings account should be reserved to help your business get through growing pains after launching, like recovering from drops in cash flow and handling emergency expenses without disrupting the budget. Think of it like your business’s emergency fund.
As your business develops and grows, you will want to open up an additional savings account to collect funds for future goals, like hiring more staff or renovating your main location. This will help you achieve these major goals without going to a bank and asking for another loan.
Managing Your Personal Finances
You also have to make sure that your personal finances are under control. Then, you won’t be tempted to turn to your business’s accounts for help when something goes wrong. So, do your best to follow a reasonable budget every month and stick to it. Keep your credit card’s balance low and pay more than the minimum with every bill. Set up an emergency fund to help you cover urgent, unplanned expenses.
If you don’t have enough in your emergency fund to cover an expense, don’t turn to your business accounts. Instead, you can use your credit card or apply for a personal loan.
When applying for loans online, check whether they’re accessible in your state. So, if you live in Anchorage, you’ll want to search for personal loans online in Alaska when dealing with an emergency. However, you don’t want to fill out an application for a loan that isn’t accessible to Alaskans.
Whatever you do, don’t blend your personal and professional finances. It will backfire.