Having a healthy business finance is an important aspect of business management every young entrepreneur aspires to attain. But how good are you at getting your accounts in order?
No doubt about it, a financially healthy business is a well-run company with a good business credit. But how good are you at managing your business finance?
Running a successful business is not just about the services you are rendering or the products you are selling, it’s also about the financial health of the business.
A healthy business finance is what makes investors and other companies do business with you, and this is why the time to start getting your accounts in order is now.
SEE ALSO: How To Finance Your Dream Business In Financial Crisis
Business credit may be a big advantage when seeking money to grow your business, but the time to start getting your accounts in order is now.
To have a successful business you may have to convince customers, vendors, investors and lenders to give you their money. The latter group can serve as a lifeline for millions of businesses.
Getting your accounts in order and build your business credit
As the new owner of a small business, one of the most important things you can do for your company is to start building your business’s credit. So how do you easily get your accounts in order and effectively build your business credit?
Establishing business credit is an important step for any new small business. A strong business credit profile doesn’t just help you secure a loan; it’s also important for attracting new business. Unlike with personal credit reports, anyone including potential customers, partners and suppliers can look at your business credit report.
Now is the time for you to establish a strong business credit if you haven’t already done so. The following steps are straightforward and well-recognised, and they’ll get you on your way to accessing credit lines for your business.
Note that these four steps represent the broad strokes of what may be done to help establish your business credit. It takes time, so it may help to be prepared to start as soon as possible.
STEP 1]. Get your house in order first
First of all, your business should have a credit profile if you don’t want most business lending decisions to be tied to your personal credit.
Even after you establish your business credit, your personal credit may still be an important decision-making point for lenders. So it may help to make sure your personal credit record is accurate and in the best shape possible.
SEE ALSO: Understanding Credit Rating And How To Boost Your Credit Score
Another thing you should do is to review your personal credit records from the likes of Experian and Equifax. Follow their procedures for correcting errors and attach your response to negative items that can’t be removed.
STEP 2]. Separate business and personal credit records
Now, the next thing is to legally separate your business credit record from your personal credit record. A sole proprietorship or partnership can’t have a separate credit record because by definition it’s not distinct from its owner. Tax Identification Number and a DUNS number issued by Dun & Bradstreet is also a must-have for your business.
This also means you should have bank accounts under the company name, and funds should never be commingled. Your business should remain a distinct entity from you to meet these requirements. Finally, you should set up business profiles with Dun & Bradstreet and Experian.
STEP 3]. Ask your suppliers to help
Your suppliers may play a critical role in helping your business establish and improve credit score. You can ask them to provide credit terms on your future business.
As your business pays its invoices on a timely basis, you can then ask the vendors to report those timely payments to Dun & Bradstreet to help ensure your company is given credit for it.
Over time and after paying on time consistently, you may want to ask your vendors to increase the credit limits they have provided. Showing growth over time may be important from a credit point of view and may also help improve your business’s working capital.
STEP 4]. Apply for credit when you don’t need it
This may seem counter-intuitive, but one of the worst times to apply for business credit may be when your business really needs it. Lenders may succeed or fail on their ability to assess risk and avoid too much of it.
They will likely evaluate your company based on its ability to pay back the loan or line of credit without delay. A business having a cash flow shortage, or that needs to pay a large unexpected expense, probably doesn’t represent a good risk.
The fact that they need the financing sends a signal that the owners may not have properly managed for the unexpected. Instead, consider applying when your company is having a great year and you can do just fine without the financing.
