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Personal vs. Business Finances

Written by: Start Your Business

Article Overview: Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profitable and can provide financial support for you and your family. Before going into business it is always wise to get your finances in order.

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Personal vs. Business Finances

Personal vs. Business Finances

Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profitable and can provide financial support for you and your family. Before going into business it is always wise to get your finances in order.

Write a monthly household budget that accounts for your income and your household expenses. Be as conservative as possible, because it is vital to your success that you have the resources to maintain your household expenses while your business is growing. Any strain on your personal budget will put the financial success of your business at risk.

It is also a good idea to check your personal credit situation. Too often, entrepreneurs think that their business credit and personal credit are separate. A business' credit is built upon the owner's personal credit. Because you have not established a business credit history, lenders and suppliers will use your personal credit history to determine your terms of credit.

Your credit report determines how you will be perceived by potential lenders and suppliers. You should know what appears on your credit report because you may find errors that you will want to have corrected. To get a copy of your credit report, refer to one of the three major credit bureaus:

Equifax
Experian
Trans Union

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About the Author: Start Your Business
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Starting a business requires you to complete a number of steps and make some key decisions. Though part of your overall plan, you’ll need to select a location, decide on a business structure, and obtain the necessary licenses and permits. In addition, determining which financing options will meet your short-term needs and long-term goals is crucial. Within this section, we’ll provide information on these topics along with guidance on buying an existing business, copyright and trademark issues, and getting support from an outside expert.

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Securing Financing Securing Financing - This is a short article that a friend of mine put together. He's a business banker and it seems that he would be the right person to put the info together. He compiled it for inclusion in a book about opening a pizza shop. There could be some useful info here - In order for a bank to even consider financing for a business loan such as a pizza restaurant, the first step is to have good personal credit. If you have previous credit issues that have lowered your credit scores, make sure you are prepared to either hear, “No”, or “Please explain this (these) credit marks.” If you have not demonstrated the ability to manage your own personal finances then most likely you will not have the opportunity to manage the financing from a bank for a business. When you make the initial contact with a bank, ask to speak to a commercial loan officer. Other types of loan officers include consumer (think car loans) and mortgage (think home purchases and home equity loans). The commercial loan officer will be able to provide a list of things you will need to give him/her in order to consider the restaurant financing. Information required for a new business most likely will include the following: Personal financial statement (Assets – Liabilities = Net Worth) Personal tax returns (two years) Business Plan If leasing property, copy of the lease agreement If purchasing property, copy of the sales contract Personal History / Resume (may not be required but is very helpful) If an existing business, add the following to the list above: Business tax returns (two years) Copy of State Corporation Commission Certificate Copy of Federal Tax Identification Number or Employer Identification Number (EIN) Copy of Articles of Incorporation (if corporation) Copy of Operating Agreement (if partnership) One common mistake a new business owner often makes with regard to financing is that one loan will cover all the financing needs. This is typically not the case and can lead to cash flow problems that could result in default on the loan, which is not what the lender or borrower want. In most cases, either two or sometimes three separate loans would be appropriate. For instance, if one is purchasing real estate then a long-term mortgage loan would be appropriate to finance that purchase. However, the pizza restaurant may need to purchase equipment and have cash available monthly to meet payroll and purchase rolling inventory. An equipment loan could take the form of a five or seven year loan with a fixed monthly payment much like a car loan. A line of credit, on which one would pay interest monthly on the outstanding balance, may be prudent for short-term cash flow purposes. All three should be addressed in the business plan and discussed with the commercial loan officer. Chris


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