Business success is dependent on a good credit score.
This seems straightforward enough. It can play out in many ways. It is smart to operate a business solely as a Sole Proprietorship when starting a business. This will allow you to save money and time. The business owner must decide if and when he or she should change from sole proprietor to a corporation or LLC as the business grows. Legally separating business assets from owners’ assets can protect them in a lawsuit. This is especially useful for businesses that need to expand or obtain credit from suppliers. Moving into a new legal entity can be a smart business decision.
This move allows the owner to separate their business and personal assets. The family home, car, bank accounts, and personal assets are obvious. Business assets include fixtures, furniture, equipment, inventory, goodwill, items such as the name of your business, and any intellectual property you create.
Having a separate bank deposit book and checking account for your business is a good idea. This will be in place from the day you open the trade. If the owner is sued, this separation could mean that the negative outcome of any legal action may only affect the business assets. There is also insurance that can help to mitigate the owner’s risk.
The business might need to borrow money as it grows. Separate personal and business assets to manage this risk.
This is important because it protects credit scores and private credit.
The business assets are held in another legal entity. This means that the business owner must manage credit and score for both their glory and the benefit of the business. However, business owners must be careful with their business credit and pay attention to the money they owe others. The system we use greatly values our credit score to manage many aspects of our business and personal lives.
This is especially important when borrowing money, purchasing a car, applying for a job, etc. It is crucial to maintain each credit score and credit report in its entirety. If the business closes, it does not affect the credit score or information of the owner. Life can continue as normal.
The same applies to buyers who wish to purchase a business. Many are looking to buy a business because of the numerous personal bankruptcies resulting from the housing crash. The banks won’t lend to anyone with personal bankruptcy, even if it is many years old.
There are many incentives to be a good steward of your money. The interest paid can be deducted from lower taxes, credit is available for a period not exceeding 30 days so that sales can be made before payment is due, and many other benefits. To enjoy all the benefits, managing and protecting your credit score is important.
Andrew is a five-time business owner who helps entrepreneurs exit and enter business ownership. He can help owners sell or buy an existing business and consult about buying a franchise. He offers certified equipment and machinery appraisals, as well as business valuations.