You've probably wished many times that you knew ahead of time how to avoid the mistakes that are going to cost you money. When it comes to your business, these can be so costly that you may lose thousands of dollars if you make them. My goal is to help you avoid some of the important ones so that you stay on the right track to making money, instead of losing money.
1. Not setting up your business in the correct Business Structure. Many individuals dont think they need to set up their company as a legal business entity because it's only them working. They dont consider it an issue when they combine their business accounts with their personal accounts. Unfortunately, this combining of funds and expenses can cause a huge crisis for the business owner. However, by keeping their business activity separate from their personal activity, they are presenting to the tax collectors a clear picture that they are acting as a business and not as a hobby.
Always keep in mind that a loan to an individual is considered a personal loan - and its reported to the personal credit bureaus. However, a loan to a corporation, partnership or LLC, is reported to the business credit bureaus " if they have used their EIN on their application. Personal FICO scores are, therefore, not affected (if there is no personal guarantee on the loan). A business will look more professional in the eyes of a lender or bank if they are set up as a business entity. This is critical in the business world.
2. Not presenting your business as an established business. What I mean by this is that your business has its own address and phone number. Im not saying you cant work out of your home, what Im saying is that to the business credit world you must show your business as having its own address. It is absolutely necessary that your business be listed in the national 411 directory with a matching address. A lot of small business owners use their cell phone number as their business phone number. Unfortunately, a cell phone number is not acceptable for most financial institutions. A lender will usually call 411 to verify your business and expect to find a specific address and business phone number. Lenders dont want to see P.O. boxes or UPS addresses. If you run your business out of your home, it must be a separate phone line that appears in the 411 directory as belonging to the address listed in the 411 directory. It must also match the address listed with the State in which the business is registered because the financial institutions will go onto the States website and verify your business information and if they dont find a match, you may be denied.
3. Not checking your credit report. You know how important it is to regularly check your personal credit reports to make sure there are no mistakes on them, but it is also important that you check your business credit report as well. When you are a new business and try to apply for business lines of credit, or trade credit (i.e. Home Depot card), vendors and financial institutions generally ask for a personal guarantee before extending business credit to your company. If you have not checked on your personal credit reports, and there are mistakes, you may lose your ability to get business credit because of possible negative data. This also holds true for business credit reports. Dun & Bradstreet is the most well known of the business credit agencies and if false, or negative information is reported to D&B, you will also be denied credit. Financial institutions are looking to lend money to a business that is being reported as a good credit risk. It is critical that your personal and business creditworthiness are reported accurately with the credit agencies, and it is up to you to verify on a regular basis that all your financial activity is being reported accurately. - 16755
1. Not setting up your business in the correct Business Structure. Many individuals dont think they need to set up their company as a legal business entity because it's only them working. They dont consider it an issue when they combine their business accounts with their personal accounts. Unfortunately, this combining of funds and expenses can cause a huge crisis for the business owner. However, by keeping their business activity separate from their personal activity, they are presenting to the tax collectors a clear picture that they are acting as a business and not as a hobby.
Always keep in mind that a loan to an individual is considered a personal loan - and its reported to the personal credit bureaus. However, a loan to a corporation, partnership or LLC, is reported to the business credit bureaus " if they have used their EIN on their application. Personal FICO scores are, therefore, not affected (if there is no personal guarantee on the loan). A business will look more professional in the eyes of a lender or bank if they are set up as a business entity. This is critical in the business world.
2. Not presenting your business as an established business. What I mean by this is that your business has its own address and phone number. Im not saying you cant work out of your home, what Im saying is that to the business credit world you must show your business as having its own address. It is absolutely necessary that your business be listed in the national 411 directory with a matching address. A lot of small business owners use their cell phone number as their business phone number. Unfortunately, a cell phone number is not acceptable for most financial institutions. A lender will usually call 411 to verify your business and expect to find a specific address and business phone number. Lenders dont want to see P.O. boxes or UPS addresses. If you run your business out of your home, it must be a separate phone line that appears in the 411 directory as belonging to the address listed in the 411 directory. It must also match the address listed with the State in which the business is registered because the financial institutions will go onto the States website and verify your business information and if they dont find a match, you may be denied.
3. Not checking your credit report. You know how important it is to regularly check your personal credit reports to make sure there are no mistakes on them, but it is also important that you check your business credit report as well. When you are a new business and try to apply for business lines of credit, or trade credit (i.e. Home Depot card), vendors and financial institutions generally ask for a personal guarantee before extending business credit to your company. If you have not checked on your personal credit reports, and there are mistakes, you may lose your ability to get business credit because of possible negative data. This also holds true for business credit reports. Dun & Bradstreet is the most well known of the business credit agencies and if false, or negative information is reported to D&B, you will also be denied credit. Financial institutions are looking to lend money to a business that is being reported as a good credit risk. It is critical that your personal and business creditworthiness are reported accurately with the credit agencies, and it is up to you to verify on a regular basis that all your financial activity is being reported accurately. - 16755
About the Author:
Find out more about setting up your business structure correctly, and learn more tips to help you present your company to the world as being well established. Get the information you need so you can obtain lines of credit and vendor credit cards for your business without putting your personal credit at risk.
