Have you ever wished that you knew ahead of time how to avoid mistakes that will cost you money? Do you realize that when it comes to your business, these mistakes can cost you thousands of dollars? Well my goal is to help you. I can tell you how to avoid some of the most costly mistakes 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.
Remember, when banks lend to individual sole proprietors its considered a personal loan and is reported to the personal credit bureaus like Equifax. By setting up your business as a corporation, partnership or LLC, the lending institutions will report your business creditworthiness to the business credit bureaus, and your FICO scores are not affected - if you used your Employer ID number (EIN) on the account with the lender. You will also look more professional in the eyes of a bank or other financial institution if you are set up as a business entity.
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.
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.
Remember, when banks lend to individual sole proprietors its considered a personal loan and is reported to the personal credit bureaus like Equifax. By setting up your business as a corporation, partnership or LLC, the lending institutions will report your business creditworthiness to the business credit bureaus, and your FICO scores are not affected - if you used your Employer ID number (EIN) on the account with the lender. You will also look more professional in the eyes of a bank or other financial institution if you are set up as a business entity.
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.
About the Author:
Learn more about how to structure your business correctly, and learn additional secrets to present your company to the business world as well established. Get the knowledge you need to get lines of credit and vendor credit cards for your business without risking your personal credit scores.
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