Your personal credit score is not the only one you need to worry about. If you own or manage a small business, your business credit history is very important. While many start-up companies are expected to carry debt as they establish themselves in the marketplace, there are many ways to mitigate your risk, and to protect your credit score.
Why do I need good business credit?
Credit is used to fill the gap between your profit and what you need to keep the business running. If you need a key piece of manufacturing equipment to keep up with production demand, you may need a loan. If you have to hire staff but are not yet running at peak efficiency, a loan helps you meet payroll. The same goes for buying supplies, managing emergencies, etc.
That being said, credit should not be used to fuel irresponsible decisions. If you are short on money for payroll because you choose to buy a company yacht, you need to re-examine your priorities!
What if your company has a poor credit score?
Many of the same steps you take to repair poor credit for your personal finances are applicable in the business world. If you are having trouble with your credit:
- Confide, don’t hide. Be honest with your creditors if you are having trouble making payments on time. Many are willing to work with you to ensure a repayment schedule that works for both parties. You may even be able to save on overdue or interest charges by keeping the lines of communication open.
- Practice sound fiscal management. Why are you having trouble with business debt? Assess all the possible reasons. Do you have the right accounting team in place? Are you responsible with the company finances? Did a large order fall through? Be proactive and make decisions about your financial future. This may mean contracting out your accounting, dedicating a portion of your profit to an emergency fund or scaling back on your client list until you have the materials and staff on hand to fulfill your obligations.
- Keep an eye on your score. You can pull your company’s credit report from trusted organizations such as Equifax. Review your credit report annually to ensure all the transactions listed are legitimate and necessary. Adjust or dispute as needed.
The toll of business debt
Being in debt is not fun. It’s not just your bank account that suffers. Seeing money fly away before you even make it can result in panic (leads to making poor decisions), stress (renders you unable to perform efficiently), sleeplessness (you’ll have to buy more coffee and you’re already short on funds), headaches, anger, depression – and ultimately, business failure.
As every small business owner will attest, failure is the opposite reason of why they started a company!
Let us help
Nobody wants to be in debt, but not everyone has the time, resources or know-how to keep the books balanced. Let us help. AF Accounting is a boutique firm and unique in the way we support small businesses. Let our expertise guide you through your startup and into the thriving corporation you want to achieve.