A massive 82% of all businesses fail because of cash flow problems, according to a US Bank study. As an entrepreneur, it can be tempting to launch or ‘rescue’ your business by using your personal savings or your own credit to get a loan.
But what if this then results in your personal finances suffering too, or what if your personal financial situation isn’t in a position to help your business?
Starting a business when you have poor credit.
Most people who want to start their own business will use their own personal savings to do so, or take out a loan. However, to get a loan you usually need a good credit score, a steady income and no debts. Unfortunately, the reality is that nearly a third of Americans have bad credit, and total US consumer debt has hit $13.51 trillion. Undeniably, this can make it difficult to launch a business. One of the best things to do is work on improving your credit score, such as by paying off debts, making monthly payments on bills, and start saving anything you can so that you have money to fall back on if you need it.
Personal finances can impact supplier decisions.
If you manage to get a loan for your business or you have enough money saved to launch it, one of the next steps can be working with suppliers to provide you with goods to sell. Suppliers will often extend credit to any businesses they work with. For example, if you run a grocery store, suppliers can provide you with the groceries and a month of credit. This enables you to pay them back with the profits you make once you’ve sold the groceries. However, some suppliers will want to know your personal credit score and debt situation to decide how much credit to extend to you. They may be unwilling to give you credit, or give you a shorter time to pay your invoice, which can put a lot of pressure on any business.
Multiple personal credit cards and your business.
The average American using credit cards will usually have three cards. Sometimes, a card is taken out to start paying for another card, so the situation can quickly spiral. Consolidating your credit cards into one can help you to manage monthly payments and control interest rates. This can help to get your personal debt in order, which will boost your credit score, resulting in better business finance too.
The simple answer is that your personal financial situation will affect your business, especially if you’re trying to launch or establish a new business. Therefore, getting control of your personal finances will only be beneficial for your business.