A lot of financial planning goes into starting or expanding a business. You must be able to estimate your business costs and have proper documentation of your revenue, to know how much profit you are making. Good financial documentation helps in making better business decisions by giving you a broader view of your financial position.
At the initial stage of setting up your business, you might find yourself paying for expenses with your personal card. From operational expenses to expansion and investment costs, there’s so much that small and medium businesses must pay for regularly to keep the business running efficiently. It is a good idea to consider other methods of making business payments that might be beneficial in the long term like establishing a business credit history.
Having business expenses separate from personal spending will help you monitor your costs and revenue easily. Opening a business account from which daily and scheduled expenses will be paid, is a great plan if you intend to build the creditworthiness of your business. Initially, your credit score might be tied to your personal credit but as the business expands, it begins to build a business credit score of its own.
Benefits of having business credit.
You already know that business credit helps you stay on track in terms of business expenses organization, but it does a whole lot more. The advantages of having business credit are numerous and could determine how successful your business is in the long run.
Access to Loans
As your business grows, chances are you would require loans and credits to meet up with demand by purchasing new inventory and equipment without straining other aspects of the business. Banks are more likely to oblige your loan application when you have a good credit score. This will be ascertained by going through your business financial statements and bank statement. Businesses are more likely to get higher amounts than individuals, hence the need for business credit. Also, banks are more likely to give you lower interest rates and convenient repayment plans when you access a loan using your business account.
Loyalty Rewards
Occasionally, some online sites and airlines give rewards in form of discounts or value-added services to business owners who pay with their business cards. This will help you save costs in your business and enjoy other valuable services that might be beneficial to you and your business.
Brand Trust and Reputation
Most people prefer to pay into business accounts than individual accounts. Giving business account details to a contractor also affects their impression of your brand credibility and sometimes informs their decision to trust your brand or not.
Expense monitoring
Having a dedicated business account helps you track your expenses and ensure that your cost stays minimal. You can also adjust spending where necessary, and budget appropriately because you have a wholesome view of your business expenses. You could also assign business credit cards to different individuals or departments, based on their roles. This wouldn’t be possible if your personal card is being used for purchases.
Investor opportunities
In terms of attracting investors, a good business credit score matters. People love to invest in businesses that are trustworthy and reliable. When you have established solid business credit over the years, you become more attractive to investors. Investments can help you expand your business seamlessly.
Conclusion
Overall, establishing business credit is very important if you want your business to have a solid foundation. It affects your brand reputation and creditworthiness over time. If you have more questions about the importance of business credit, you can decide to consult a financial expert. When creating a business entity, it is also necessary to speak to a lawyer who can help you decide the best business entity for your type of business. Some banks offer different loan bands for different type of entities, so this is something you also want to consider.
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