In today’s world, many people are choosing to start their own businesses. In fact, 4.4 MILLION new businesses were created in 2020 during Covid. The highest record ever in American history.
While entrepreneurship can be a rewarding experience, it’s important to understand the risks involved, especially when it comes to your finances. One of the most important things you can do to protect yourself and your business is to keep your business and personal credit and finances separate.
Commingling your personal and business finances isn’t only risky, it’s extremely dangerous and could put you out of business. 😰
If you’re an entrepreneur that hasn’t completely separated your personal and business finances, you’re not alone. For more than 66% of small business owners, this is their reality.
But, here are some reasons why commingling your business and personal finances can be a bad idea, and why you should start separating it ASAP:
When you mix your personal and business finances, you are essentially treating your business as an extension of yourself. This means that if your business is sued or runs into financial trouble, your personal assets may be at risk. By keeping your personal and business finances separate, you can limit your personal liability and protect your personal assets.
Commingling your business and personal finances can create a tax nightmare! You may lose out on valuable tax deductions for business expenses if you don’t keep accurate records and separate your personal and business expenses. This can lead to penalties, fines, and audits from the IRS.
Keeping your personal and business finances separate can help you maintain a professional image. It can be difficult to build credibility with clients, investors, or lenders if you’re not able to show that you have a clear understanding of your business finances. By keeping your personal and business finances separate, you can demonstrate that you take your business seriously and that you’re committed to its success.
Mixing your personal and business finances can make it difficult to keep accurate records. This can lead to confusion and mistakes that could hurt your business in the long run. By keeping your personal and business finances separate, you can avoid these problems and ensure that your business is running smoothly.
Commingling your personal and business finances can also hurt your personal credit score. If your business is struggling, and you’ve used personal credit to finance it, it can impact your personal credit score drastically. Which can make it harder for you to get loans or credit in the future. By keeping your personal and business finances separate, you can protect your personal credit score and ensure that you have access to the credit you need when you need it.
The Bottom Line
Keeping your personal and business finances separate is essential for protecting your personal assets, maintaining professionalism, avoiding tax issues, avoiding bookkeeping mistakes, and protecting your personal credit score. By keeping your personal and business finances separate, you can give yourself the best possible chance of success.
Don’t know how to start building business credit strictly in your business name and need help? Schedule a call with an FCU advisor, and we can point you in the right direction. It’s what we do. Schedule your call today.
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