Seven Serious Financial Mistakes Small Business Owners Make...
Serious Mistake # 5 Contaminating your credit That happens if you fail to keep your credit history completely separate from your spouse’s. If your spouse isn’t as prompt in paying as you are you can, subsequently, end up with a lower credit score. It gets even worse if you’re using personal credit to finance your business. The contamination can keep you from obtaining the financing you need to keep your company growing.
Serious Mistake # 3
Your business needs money.
Not paying bills on time
No surprise there, every business needs money to take care of overhead...meet payroll...pay for supplies...grow...and to...well... stay in business.
Sounds like a no-brainer, doesn’t it. After all, how can you expect to build good credit if you don’t pay your bills on time?
But how you get that money...and what you do to get it...can have a critical impact on the future of your business.
But when cash flow isn’t exactly flowing, it’s easy to get behind on the bills. And that can take your business down the tubes.
That’s what this article is for. To warn you of the hazards and risks in following what might seem to be conventional wisdom in financing your business. And to show you an alternative. Serious Mistake # 1
Using personal credit to finance your business
It’s also the most common mistake. And it ranges from paying for business expenses with your personal credit cards to obtaining personal loans to finance the business and its expenses. When you use your personal credit to buy business items, you reduce the amount of credit you have available for personal and family use. You’ve already used if for business expenses. And should you need that credit to see you through an emergency— such as an accident or illness that keeps you from working—you could be in a real bind. How to avoid it Obtain credit in your company’s name. Not yours.
Serious Mistake # 2
As an entrepreneur, you can’t afford even a single late payment. Your credit file is a complete history of your credit activity. One late payment can be held against you for years. And it can be the basis for denying you new credit when that credit is crucial to your company’s survival.
How to avoid it. Pay your bills—both personal and business—on time. If you should be late with a payment, contact the lender immediately, explain the situation and promise it won’t happen again. If you’re lucky, you may head off a negative report.
Serious Mistake # 4 Using your family’s money
Maybe it’s persuading your spouse to use his or her credit card to help bail out the business. Or perhaps it’s borrowing from money you’ve set aside for paying for college or for retirement. Or investing your savings into your company. No matter. It all adds up to one big mistake.
Putting personal assets at risk This one is a lot like #1 and it’s equally dangerous. It comes from putting your assets—your home, for example—up as collateral to guarantee repayment of a loan for your business.
As we’ve pointed out, over half of all small businesses fail in their first year. Some say the percentage is actually much higher.
The danger is that if your business should fail—and 85% of all small businesses do within their first year—you could lose not only your company but your home or any other asset you’ve pledged.
My point? If your business fails you could wipe out not only your own finances but those of your family as well. Just imagine how you’ll feel telling your kids they won’t be going to college.
Remember, if you have personally guaranteed any type of credit for your business and your business can’t pay off its debts, you’ll have to repay the loan. Personally.
How to avoid it
How to avoid it
Maybe investing the family nest egg into the business seems like a good idea. It isn’t. Keep your business and family finances separate and distinct.
Incorporate your business rather than establishing it as a sole proprietorship. When prepared properly incorporation can shield you from personal liability for the company’s debts and also offers other tax advantages as well.
Copyright 2009, UnCap, Inc. All rights reserved
How to avoid it Maintain separate credit accounts. That way you’ll have separate credit histories so one spouse’s late payments won’t compromise the other’s rating. And keep your personal credit separate from your business credit.
Serious Mistake # 6 Failing to incorporate Incorporating your business sets its assets apart from your personal ones. Which means that if your company is ever sued—and the judgment goes against it—your home, car or other personal assets can’t be touched. Equally important, incorporation puts you on the path to establishing corporate credit. And that is what will allow your business to ultimately grow.
How to avoid it It isn’t rocket science but it does require a little paperwork. If you aren’t familiar with this, you may want to contact a lawyer who has an excellent reputation for setting up corporations. I may be able to assist you with this. It’s also not a bad idea to maintain a physical office—even if it’s a home office—and get a local phone number in your company’s name. And if your business industry requires such, you’ll also need to obtain the appropriate business licenses.
Serious Mistake # 7 Going it alone You know that if you go to your bank for a business loan, they’re going to require that you show them all of your business financials for the past two years. And if you’ve only been in business six months, that could be a problem. And you certainly don’t want to encumber your house or other personal property with a bank loan. Because if your business goes south, it’ll take your house and possessions with it. You’ve heard about corporate lines of credit. And that sounds perfect for your business. So you apply for one. And sit back and wait for the money you need. If it were only that simple… Fact is: 8 out of 10 new business owners who apply for corporate credit lines are not approved. They are turned down flat and never know why.
The reason? They’ve failed to present their businesses in a way that lenders can properly value them. Their companies may be strong and healthy but because of the way the information is organized, the lender can’t see it. How to avoid it Allow us to obtain your lines of credit for you. After all, that’s what we’re here for. We’re UnCap, Inc. And our sole purpose is helping new small business owners get the financing they need in the new tightened lending environment. Up to $500,000 in fact. All without having to present reams of documentation or encumber personal assets. Unlike many others, at UnCap, we don’t just promise to obtain financing for you, we guarantee it. If your business could use that kind of capital with no strings attached, let’s get started. We’ll create a custom Business Aptitude Evaluation Report tailored specifically to you and your business which covers the 36 different parameters that we’ve found that can significantly impact the approval success of any loan application. The Report provides a thorough evaluation of your company and recommends the specific actions you should take to improve any deficiencies. The result? Your business becomes Bank ReadySM—able to withstand scrutiny from even the most cautious of lenders. Not only that, it looks like the kind of company any lender would be eager to lend to. Make no mistake about it There’s a right way and a wrong way to go about getting financing for your new business. Let us show you the right way. It all starts with our one-of-a-kind Business Aptitude Evaluation Report—an unbiased and actionable look at your company from a lender’s point of view. We’ll work together to provide you with recommendations and precise strategies on concrete measures you should undertake to ensure that you get the funding your business needs. Remember, image is everything. And when it comes to financing your business, your business image can mean the difference between risking your savings and getting approved for the financing your business needs to reach tremendous success. By John W. Collins www.TheFinanceFormula.com
UnCap, Inc. Unsecured Capital Consultants Uncap Your Company’s Potential 800.505.0013
Copyright 2009, UnCap, Inc. All rights reserved