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New To Business? Get Your Personal Finance In Order

 

Settling on a big idea and moving towards setting up your own business is an incredibly exciting time, but it’s expensive, too. According to the SBA, it costs $30,000 to open a business, and for a lot of people they will require the input of their own personal reserves, or lending that they personally will ultimately be responsible. It’s in this way that your personal finances become tied to your business.

It can work both ways, however. A willingness to wisely invest in your business can provide impetus where it would otherwise require handing over a piece of your business to investors. Finding the right balance in managing your business financesis crucial to having a healthy business.

How your personal history will impact on establishing your business

The good news for small business founders is that funding is not far away. According to USNews, banks loaned $600bn to small businesses every year - and that's without considering personal cash injections and venture capitalism. You will typically have a business and a personal profile, but they can affect one another. It is entirely possible that you will have no business profile, but a good personal score can persuade bankers. The opposite is true, and having negative decisions on file when it comes to credit reports can affect you. How do you counter this? Before thinking about establishing your business, make sure that everything on your credit report is up to date. Take steps to ensureit presents a good image, and follow good credit practises in your private life.

Supporting your business with personal funds

While it is now fairly routine for businesses to receive loans and cash injections, 40% of businesses receive lessmoney than they requested, according to US Today. Plugging the gap is your own personal funds. This can be from savings, salary, or even personal credit measures. This is a great way to help fund your business and gives you full control. However, ensure you treat it like a business. If you opt to use personal credit cards to fund your growth, you cannot repay it with business funds; it will co opt from your personal life. Make sure you clearly define your incoming funds and outgoing cash. It’s best practice to get any credit arrangements you have in good health prior to opening a business to remove any temptation.

Attracting capital investors

Businesses often receive their ‘big break’ when they are targeted by venture capitalists. If an idea seems reasonable enough, big money can come in to supercharge the business. According to Bloomberg, startups took in $67bn of venture capitalist cash last year, showing the possibilities and market appetite.

Like with the banks, venture capitalists will ask questions concerning your ability to manage the business, as this comes under risk. It’s crucial that you have your personal finance together to demonstrate that you’re able to manage a big-figure business in the future.

Starting up a new business is exciting, but in many ways it will be a reflection of how you live your life. You need to be financially responsible, organized and pragmatic. If you can demonstrate these traits, lenders will have faith in you.

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