While there may be others, the risk most often thought about by business owners is financial. The fear of failure is not as scary as the fear of financial ruin as a result. That fear stops many from taking the leap and taking a chance on a new business venture. The solution is both simple, and complex: separate your personal credit from your business credit.
Why Separation Is Important
You can only do so much to insure the success of your business. Planning and preparation, as well as a sound business plan will go along way: however, IRS studies show that as many as 85% of all small businesses fail in the first five years. What’s more, an analysis by Dunn & Bradstreet shows that the figures do not go down much in the following years and that up to 70% fail in the first eight years.
Of course, no one goes into any business thinking it will fail. The plan is to succeed, but the figures show that even the best-laid plans can fail. Famous and very successful business people all through history have failed many times before succeeding, so it is nothing to be ashamed of as long as you try. The shame is in not preparing for any possibility and protecting yourself and your family. It is much harder to start over if you have to re-establish your personal security, too.
In order to accomplish this mission and successful separate your credit from that of your business you need to accurately assess your character. Going into a business takes a great many traits that are similar to those needed to protect your finances so you may have already determined your strengths and weaknesses in these areas. If not, you should, and this will help you in both determining what you need to improve or provide for your business as well as your finances.
Be truthful, and ruthless in your appraisal of your abilities. The important thing is recognizing where you need work, or help. If you cannot strengthen the areas that are weak, you can seek help with them. If you cut yourself too much slack, you may end up not working on critical areas, or getting help and ending up losing more than you can afford to lose.
o Attitude: To start with, the right attitude will go a long way in helping you succeed in separating your personal finances from your business finances. How you look at the money will give you some perspective. The businesses money is not yours. You are simply an “employee” of your company and it pays you. Thinking like that will help you place the income from your business into an appropriate account separate from your own. Pay for all business expenses through that account, not your personal bank accounts, credit accounts, or loans.
o Discipline: You must have a great deal of discipline to run a business to start with, but in order to keep your finances separate you need great strength. You will be handling all of the money as it flows through your company. There will often be great temptation to simply take what is there instead of putting it through its proper channels.