Being able to start a business is a great achievement in the career of every new entrepreneur as it gives one a chance to be their own boss. The only challenge is that sometimes it can be very difficult to separate personal life and business life. However, as much as it can be difficult, it is good to try your best to separate these two, especially when it comes to finances. This is because your personal life may lead to negative impacts on your business at times.
Debts can be detrimental to a person’s life, especially if one takes out loans irresponsibly until they become difficult to repay. Before you take any loan, whether personal or business, get to know the impact it will have on the future of your business. Here is a deeper insight into how private debt can affect your business life.
1. Impact on Your Credit Score
As your business grows, you might need a loan to finance the growth of its operations. In fact, almost all businesses acquire a loan at some point in their lives, and before a lender can approve you for a loan, they will first consider your credit score to know whether you are qualified for it or not. If your private loans have lowered your credit score, you will miss out on financing opportunities for your business, and this will hinder its growth. Sometimes even a small payment that you have missed can have a great impact on your credit score and hence hinder you from qualifying for a business loan.
Many people think that their personal credit score will not have any impact on their business, but unfortunately, this is not the case, because it will also hurt your business. This is why Mountain Ridge Associates instruct their clients on the importance of maintaining a good credit score, even if it means settling minimum payments for all loans. When a lender examines your personal debts, they will be able to tell whether you are a good borrower or not.
2. Impact on Your Suppliers
Many business owners buy things on credit after having a clear agreement with their suppliers on how they will settle the debts. Your ability to settle your debts as agreed upon with your suppliers helps to build a strong business relationship between both parties. After an established history of successful payments, it becomes easy for you to run your business without the worry of how you will settle the invoices because your suppliers will give you a time frame to sell the commodities first. However, if you have heavy personal debts that have managed to ruin your credit score, it will be difficult for your suppliers to trust you in business. Some suppliers are very vigilant, and they will examine your creditworthiness before extending any terms to you. If they are not satisfied, they may be reluctant to extend any credit to you or may demand that you settle the invoices as soon as possible.
3. Your Personal Taxes
Taxes are very serious burdens that you must pay attention to, both at the individual and business level. While they might be complicated to compile, Mountain Ridge Associates says that is wiser to hire a tax consultant rather than make a tax mistake that will land you on the wrong side if IRS. Your personal tax mistakes, tax issues, accrued tax interests or debts may trigger the IRS to file a tax lien against your business and other properties. File both your personal and business taxes in the right way to avoid all these financial mishaps.
4. Your Personal Issues May Eat Up Your Business Profits
When you are having financial struggles due to accumulated personal debts, you may find yourself using your business profits to solve personal issues rather than settling business expenses. In some situations, this may be a wise investment, but if you withdraw too much from the business to solve your personal financial issues, it is very easy to find yourself bankrupt. If you made a provision to use a certain percentage of business profits for personal use, do not exceed it because the amount you will leave behind may not adequately support the business long enough.
5. Decreased Productivity
While this is an indirect impact, having many personal debts may hinder your concentration in the business and therefore affect your productivity. Financial stress is a very dangerous condition for any businessman because it will be hard to come up with new ideas to help the business grow. Stay financially healthy with your personal finances and remain aware enough to handle and control daily operations in your business.
While you can legally be separated from your business, how you behave with your personal finances will always have a great impact on your business. People may judge you based on how you manage your business or judge your business based on how you live your personal life. Therefore, it is advisable to remain conscious of how you may affect your business through your spending habits.
