If you’ve been managing your own personal finances for years, how hard can it be to transition to managing your business’s finances? Finance is finance, right?
Not so, say experts. One of the biggest learning curves for business owners is learning the differences between business and personal finance, and how to manage them accordingly. A recent article on cnbc.com takes a look at some of the differences. Acknowledging that there are some tactics that work well for both individuals and businesses, including reducing expenses and long-term investing, the article says that most other tactics simply don’t. One big one is leverage—using any of various techniques, including borrowing money, to multiply gains. But the downside is that losses can be multiplied, too. Which is why in personal finance, this is usually a bad idea.
Using leverage in personal finance can mean devastating losses, as in your car or even your house. But as the article points out, business is another matter. In business, there are many situations where leverage makes solid financial sense. In fact, most businesses will use leverage at some point to build their businesses or increase their profit margins. And within a business, leverage has a tremendously nice upside.
If you’re able to borrow money, that means you can get by with a smaller investment in that business. If you turn a profit, that means the ratio between your investment and the profit you make is much larger. Your percentage profit can be enormous, thanks to leverage. At BFS Capital, we’ve seen time and time again how borrowing money at the right time and under the right conditions can work for businesses in nearly every sector, in all parts of the country. In fact, that’s why we do what we do: offer business loans to small and medium-size businesses. To us, there’s nothing more satisfying than investing in the success of U.S. businesses.
We offer loans up to $500,000 with NO upfront fees. Ever. We’re all about helping businesses grow and reach their potential. We recognize the tremendous contribution small businesses make to the US economy and their communities. We’re strong believers, in the power of working capital to enable business owners to grow and expand their businesses in ways they couldn’t otherwise. As they’re continuing to build their enterprises, they’re putting money back into the economy by doing business with other companies.
For business owners learning the many differences between business and personal finance, here’s additional advice from score.org: keep your business and personal finances separate. This may sound obvious, but you’d be surprised how often business owners commingle the two. Although it’s easy to let the two become intertwined, entrpreneur.com offers four basic practices for keeping them separate:
- Keep separate checking accounts. This helps with record-keeping, especially at the end of the year
- Use a business credit card for the same reasons you’d keep a separate business checking account
- Make it official. Establishing an LLC or S Corp not only makes your business distinctly separate, it also lends some protection to your personal assets. Have an analysis done to see what path makes the most sense for you
- A plus for filing taxes. Business accounts make it easier to file and get legitimate deductions, such as business credit card interest