Most people who want to start up their own businesses today often find themselves using personal resources to finance their ventures. They either invest their savings, money lent from significant others and family or even tap into their retirement funds.
When mixing their personal accounts with that of their business’ transactions, there is often a risk. Using their major assets for collateral, giving personally guaranteed business mortgages, pushing personal credits to the limit, can lead to jeopardizing personal financial security.
And its not surprising that a significant percentage of small firms operate through personal credit cards. What these people should actually know and do in to learn is how to separate their personal credit and their business credit.
The use of credit cards in small businesses has for some years now, been a common practice. And in fact, many major credit cards offer incentives such as mileage points, discounts and more to do to. Doing this can create a shield , as it often protects both of the entrepreneur’s personal as well as business assets and allows opportunities for better growth and organization to the company.
Personal Advantages to Using Business Credit
By separating your personal account with a company’s business account, individuals are more able to protect private assets in case something goes wrong with the financial status of the company. Which means that your personal security or that of your family would not have to be compromised.
In such cases where a firm goes bankrupt and does not have corporate credit, the individual can be held responsible for any of the company’s expenditures both legally and personally. Separating accounts gives an added layer of protection to savings and properties owned by the individual and not the company.
Corporate Advantages in Using Business Credit
Obtaining business credit could also improve the financial flow of the company as well as help the company grow. One very good advantage is being able to save a lot of money. By having a good credit profile for the company, business owners have the option of obtaining lower interest rates for leases and loans. The added credit can make it easier for the company to increase staff, raise inventory and get discounts for goods purchases, especially in bulk.
Aside from this, it keeps the company’s financial transactions organized making it easier for you to keep track of your company’s expenditures, which also allows you to more easily monitor accounting and tax transactions. Most importantly, it could open up additional opportunities to attract investors especially when you set your company up to create a more organized cash flow system.
For any person who wants to start a business, it is important to be smart and practical in handling finances. By using a separate credit account for that small company, not only could it help protect assets, but one also increases the chance of the small business to add more to the bottom line.
Business credit can also improve managing and day to day operations involved in running a company because it can save you time, money and effort. And increase the credibility that the company is a “real” business.
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