As an entrepreneur, there is one financial mistake that you will want to avoid: mixing your professional finances with your personal ones. Find out why this is such a serious mistake and what you can do to avoid it.
The Potential Consequences of Mixing These Two Worlds
Mixing your personal finances with your business’s finances can be incredibly risky. You could put yourself in a precarious position in both your personal and professional life.
What are some of the potential consequences that can come with mixing these two worlds together?
- You could sabotage your consumer credit score. A lower credit score can lead to higher interest rates, higher insurance premiums, higher deposit requirements and lower loan amounts.
- You could sabotage your business credit score. A good business credit score can help you access more funding with fewer restrictions. It can also help you appeal to more vendors and business partners.
- You could make it harder to manage your personal accounts.
- You could make bookkeeping more complicated for your business.
- You could make filing taxes more difficult.
What Should You Do Instead?
There are a few things that you can do to avoid this mistake and keep your personal and professional finances completely separate.
Plan for Emergencies
It will be tempting to stray from the rule of separating your personal and professional finances when something goes wrong. You’ll just want to turn to the easiest solution, even if that means pulling savings from one of your “separated” accounts and worrying about the consequences later. You can prevent this tricky situation from happening altogether.
How? When it comes to your personal finances, you should start building an emergency fund so that you can handle the costs for urgent home repairs, car repairs and medical appointments. You can also research potential online loans for times when you don’t have enough savings to cover an emergency expense.
When applying for an online loan, you should make sure that it’s available in your current location. So, you should try to apply for a loan in Washington State if you live in Seattle, Spokane or Olympia. You don’t want to waste your time filling an application for a loan that you can’t even qualify for. Make the process fast and simple from the start.
What can you do for your business? You should build another emergency fund so that you can handle sudden repairs, equipment replacements or drops in cash flow. You should also look into essential forms of insurance like property insurance and equipment breakdown insurance to make sure that you have enough coverage to deal with an expensive disaster.
Open a Business Checking Account
One of the first things that you should do when you’re starting your own operation is to get a business checking account. This makes your business a separate legal entity from you. It also helps you track and record business transactions since they’re not blended in with your personal purchases.
Get a Business Credit Card
A business credit card can help you keep your business transactions completely separate from your personal ones. It’s also an essential tool for building up your business credit score and opening up borrowing opportunities in the future.
Some things are meant to remain separate. If you want to avoid financial trouble, you should keep your personal and business finances far apart from each other.
