As an entrepreneur, you’re hardwired to enjoy a greater level of risk than the average person. But, if there's one thing you don't want to risk – especially in today's economy – it's your personal financial security.
The unfortunate reality is that small business owners often make critical financial mistakes when financing the launch, operation or growth of their businesses, mistakes that can severely limit the amount of funding available for their business and, ultimately, jeopardize their family’s financial well-being.
You may not even realize that you've made a mistake until one day you find out that you can’t qualify for a mortgage. Or you can’t get the to-die-for financing offered on the new car you want. Or you find you can't secure a credit card for your small business. Or worse yet, your business runs out of cash and you can't get the financing you need to keep it afloat.
Consequences like these are often the result of approaching your business without a strategy for responsible business development, with a Technician’s mindset rather than the Entrepreneurial mindset. While The Technician in you has an important part to play, the financial health of your business is about more than just “doing the math;” it's about taking the perspective of The Entrepreneur and thinking and acting with a long-term strategy. It's about knowing that the decision you make today will have consequences in the future.
Remember, a successful business – an E-Myth'd business – is an asset that fuels the path towards more life. Getting your financial house in order is critical to growing your business asset and obtaining financial freedom!
The hands-down biggest and most common mistake small business owners and entrepreneurs make is using personal credit to finance their businesses. Common examples include:
It wouldn’t surprise us to hear that you’ve used one or more of these financing methods to fund your entrepreneurial ventures. Many business-start-up experts recommend these methods for funding new businesses. While their advice is well-intentioned, it can be disastrous. The reason for not using your personal credit for business purposes is simple: it may destroy your personal credit.
By using your valuable personal credit for business expenses, you run the risk of:
To protect your financial security, the bottom line is: don’t use your personal credit to finance your business activities. Instead, you should take action to secure credit in your company’s name immediately.
It's important to remember that you are not your business. An integral part of creating an “E-Myth'd” business involves building your business into an asset – a separate entity that you can pass on to family, sell outright, or own without actually running. It's about building a business that isn't dependent on you.
One of the ways you can support the development of an E-Myth'd business, and avoid the pitfalls we mentioned above, is by separating your personal and business finances (credit included). Not only will this help you create a business that isn't dependent on you, it will help you relate to your business more objectively, track, quantify and keep more accurate financial records, and make better and more informed management decisions in general.
Here's the good news: it's not too late. You can have the peace of mind and financial freedom that will allow you to concentrate on the critical business-building work necessary to create a world-class E-Myth'd business. Whether you're a start up or a well-established business, the time to begin creating a business credit asset is now.
Like any other strategic business work, building good business credit requires patience, diligence and dedication. It helps tremendously to have an ally and an expert to assist you in the process of safely establishing business credit.
To learn more about the how you can create your business asset, click here for a complimentary business credit consultation and to obtain our free e-Book, "Unlimited Business Financing – Without a Personal Guarantee” – a step-by-step process for building a business credit asset.
Business Credit: It's not Personal
Your Financial Strategy
Budgeting for Fluctuating Revenue
Martins O. says:
You guys have been a wonderful resource to my new business. Though i couldn't have attended any of your conferences because of distance and limited resources, your news letters and articles have been of tremendous help to me and my friends who are in business (I forward the mails to them).
Please kee up the good work.
Femi Martins,
Lagos, Naigeria.
Submitted Sep 17, 2009 12:37 AM
Eileen F. says:
It has been supportive to receive your news letters and to always be ahead of the game on business advice.
I also have limited resosurces but have read the books and often refer to them.
Eilyen Feirbairn
Center of Unified Healing London
Submitted Sep 17, 2009 1:43 AM
Adenike O. says:
you guys are really business expect. you have a way simply getting to the issues. i always look forward to reading your newsletter. its the blood tonic in my business.
do you have any seminar on business management in october end?
thank you.
Adenike Okoro
Lagos Nigeria
Submitted Sep 17, 2009 7:55 PM
AVINASH A. says:
though not possible to personally attend, your audio CD-cassettes are fantastic. I am very eager to read and take note of every advice from your weekly bulletin
With thanks,
Avinash Arole
Pune-India
Submitted Sep 18, 2009 12:23 AM
Olufunmilola A. says:
ive read the e myth revisited and the e myth manager. im actually looking to buy the e myth physician as im a physiotherapist about to start my own clinic. thanks for this particular article as it helped merealize i have to be careful raising the capitali need to start my business.
we live in a society that does not support credit as u have to have ur money upfront for everything u buy. but i guess the advice stillholds in a way not to dip into ur savings to fund ur business. id love to know other ways in which one could fund a business. id also like to add that its wise to keep a seperate bank account for ur business as opposed using one's personal account. that way one can really see how one is doing business wise.
Submitted Sep 19, 2009 2:34 PM
Ron M. says:
The challenge is finding that financing to get something off the ground. The only resources I have to invest are my lines of credit, home equity etc. I recognize that is risky and those resources need to be freed up as soon as possible but for people like me that's our only hope to ever get into business. Banks won't even look at a new startup, particularly if it has no decent assets like buildings, vehicles etc. to use as security. I h ave a great business plan just sitting here but can't do anything with it due to financing. Its very frustrating.
Submitted Sep 21, 2009 9:46 AM
Curtis N. says:
My business is the support of start-up and early-stage, mostly high-tech companies. I also have a seed fund, and invest personally. The advice for founders not to use personal assets to secure business capital is suspect. I have helped start nearly fifty businesses, and I have yet to find a bank that does not require a full personal guarantee, nor an early-stage investor, or investment fund that does not require the founder to be 100% personally committed. If the founder is not "in", why should investors get in. The key is to create the right business "Recipe" so that you can execute in a manner that will allow you to grow your asset value in the business, and if possible and desired, remove your personal guarantees and risk accordingly.
Submitted Sep 24, 2009 3:04 PM
Trent L. says:
You bring up a good point, in the last 50 start up that you have been involved in, each require a personal guarantee on behalf of business owners. There are a couple thoughts that come to mind that I would like to share. First, why do you think they required a personal guarantee? Simple! The business had yet to prove itself financially responsible. To the banks, they were high risk. If that business focused on building a business credit assets, in other words, the creditability for the bank to lend to the business without the backing of the business owners, then it would be a different story. You can see why it is so important to start building business credit as soon as possible.
The second point I wanted to make is the fact that just because a bank requires a personal guarantee now, doesn't mean that the bank will not drop it later. The point being this, the lender will never drop it until you prove the business can stand on its own feet. You have to prove the business handles credit responsibly, and the best way to do that is focus on build a solid business credit profile.
Submitted Sep 25, 2009 2:33 PM
Radolf J. says:
Hey! Thanks for the suggestions. Really nice article. I am totally agree with you, we should not use our savings for business ventures.
Submitted Sep 27, 2009 11:47 PM
CHARLIE S. says:
CHARLIE S. says:
Experience, experience, pay attention to the following;
"And if things get bad enough, you may (will) have to declare bankruptcy."
Please do not listen to people that reassure you that what you want to do is the right thing to do. Make the decisions you have to make based on sound statistics that are a matter of record and not on the results of over enthusiastic people that hope to prosper from your venture even if it fails!
I fell into this category and now after reading the statement that I referred to in the beginning of the reply, you can readily guess the outcome of my lack of investigation!!
I know there must be many people out there with ambitions, that are optimistic about them as I was, but be very careful of who you get your information from and the truthfulness of its content.
Eventhough this is happening to me, I will never give up trying!
Submitted Oct 16, 2009 4:55 PM
You've read about how your company is built around your vision, now do something about it.
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