How Entrepreneurs Can Manage their Personal and Business Finances

How Entrepreneurs Can Manage their Personal and Business Finances

by | Accounting News, Business Consulting, News, Resources, Tax, Tax Consulting, Tax Planning

Entrepreneurs are tasked with not only managing their business finances, but their personal finances as well, and when needs, circumstances, and priorities don’t align with the two, managing it all can feel overwhelming. To keep personal finances from getting pushed to the side, below are some tips to help you handle your own money while overseeing your business’s.

Plan for Rainy Days

Building an emergency fund for rainy days is not novel advice, but business owners might want to stash away even more than the recommended three to six months’ worth of living expenses. Are you prepared for circumstances like irregular fluctuations in cash flow, loss of a major client, or a national pandemic? Keep in mind that the purpose of an emergency fund is not to earn a big yield on this money but to be sure it’s there and accessible, so keep it in an FDIC-insured cash bank account.

Separate Business and Personal Finances

When you first start a business, open a business bank account and apply for a business credit card for business expenses. In addition to helping you build business credit, this will streamline your tax prep during tax season, lend more credibility to your business as an actual business, remove personal liability in case of adversity, and eliminate the burden of your business’s financials from your personal accounts.

Automate Bill Payment Schedules

A common personal financial tip is to automate your bill payment schedule, so consider carrying this practice over to your business finances as well. This will hep to prevent you from getting overwhelmed with both personal and business bills, thereby avoiding late payment fees and knocks to your credit score.

Manage Your Personal Credit

You know how crucial good credit is for your business, so it makes sense to keep your personal credit in check as well. Be sure to pay bills on time even if there are months when you can only make the minimum payment. Also be aware of your credit utilization (the percentage of credit that you’re actually using versus your total available credit limit). Keeping your credit utilization below 30% will keep your credit in good standing for loan approval.

Save for Retirement

Although it’s typical for business owners to invest profits back into their business, you still need to prepare for retirement, and investing and diversifying your savings may help you save more money for retirement than you could as an employee. SEP IRAs, SIMPLE IRAs, Solo 401(k)s, and SIMPLE 401(k)s are all retirement plan options available to small businesses. Research each one to determine which would be the best fit for you and your business. As for diversifying investments, look into options like stocks, bonds, ETFs, and money market mutual funds. Allocating your assets into different funnels will give you some breathing room should your business experience a struggle period.

Look to Tax Professionals

It’s no secret that U.S. tax laws are complex, and different business entities have different taxation rules. An accountant or tax professional can help you determine what your obligations are. To streamline the process, be sure to keep clear and organized records all year long.

How Could New FICO Scoring Affect You?

How Could New FICO Scoring Affect You?

by | Accounting News, CPA, News, Resources, Retirement, Tax, Tax Planning - Individual, Technology

A new scoring model from Fair Isaac Corp., the company behind the FICO score, is set to be implemented later this year by Equifax and other major credit bureaus. The popular score is commonly used by lenders to determine your eligibility and interest rate for certain loans. Read on to find out if it could affect you.

Consumers in Debt

The new model, FICO 10, will start incorporating consumers’ debt levels into its tabulation, which could cause a decrease in score for some overextended consumers, particularly those who have both personal loans and rising debt. This change is speculated to create greater divide to scores in the 600s. If your score is in the 600s and you’re making payments on time and hacking away at debt, your score could increase. On the other hand, if you’re struggling to pay off debt and missing payments, your score could go down.

Combat Credit Card Spending

FICO 10 will give more consideration to how consumers have changed their payment history in the previous two years, benefitting individuals who are making progress in paying off debt and judging more harshly those who show increasing financial strain. Currently, credit card utilization, which is the percent of your available credit lines you’re using, accounts for 30% of your score, but it could become even more important in FICO 10. The goal is to keep your utilization as low as possible, so be sure to pay balances in full each month or at least keep the balances low. One option to paying off credit card debt is to consolidate it by taking out a personal loan, but this only works if you use that loan to pay off debt while refraining from piling new debt on your credit cards.

Create a Monthly Budget

Because delinquent payments will carry greater weight in the new model, it’s crucial to pay bills on time, so if missing payments is a habit or even an occasional slip-up, you’ll want to be more mindful of this. The best way to keep up with payments is to create a monthly budget. This will not only help with keeping payments at the forefront of your mind (and on your calendar), but you’ll have a better overall picture of your finances and whether or not you’re overspending. Also consider enrolling in autopay, with your loan or credit card payments automatically taken from your bank account at the same time each month.

Though banks and lenders decide which credit model they’ll use, Fair Isaac claims that FICO is used in 90% of all lending decisions, so take the next few months to make changes that will start cutting away at high interest rate debt and provide better overall financial wellness.