- Keep your personal and business finances separate to better manage your business expenses and profits.
- Have an emergency fund of 3 to 6 months’ worth of expenses to protect your business from unexpected personal financial events.s
- Borrow wisely by having a repayment plan and not borrowing more than you need
- Manage your debts by negotiating with creditors, filing for bankruptcy, consolidating debt, or settling deb
- Safeguard your business by getting insurance, seeking professional advice, and keeping your finances separate.
Owning and managing a business can be a fulfilling and lucrative experience, but it can also be challenging. One of the challenges that entrepreneurs face is their ability to separate personal finances from business finances. Sometimes, a business owner’s financial struggles can negatively impact the company.
As such, it’s essential to take proactive measures to protect your business from the adverse effects of personal financial struggles. This blog post will look at some strategies to help safeguard your business.
Keep your personal and business finances separate.
One of the most common mistakes business owners make is mixing personal and business finances. When this happens, keeping track of your business expenses and profits becomes difficult.
As such, it’s essential to have separate bank accounts and credit cards for your business and personal finances. Keeping your finances separate will facilitate better financial management, make filing taxes more accessible, and protect your business from personal creditors.
Have an emergency fund
As a business owner, having an emergency fund is crucial. Personal financial struggles such as loss of a job, unexpected medical bills, or a divorce can impact your business. By having an emergency fund set aside, you can protect your business from such occurrences. Aim to have 3-6 months’ expenses in your emergency fund.
Borrow wisely
Sometimes, personal financial struggles can lead to borrowing from your business. When this happens, it’s advisable to borrow wisely. Ensure you have a repayment plan, and don’t borrow more than you need. Also, avoid taking on high-interest debt that negatively impacts your business’s cash flow.
Manage Your Debts
One of the most important things you can do to protect your business from personal financial struggles is to manage your debts. You can do this using different strategies, such as:
Negotiating with Creditors
When you have debt issues, the first option is to reach out to your creditors. Talking to and negotiating with them can help you make a manageable repayment plan. Before you call your creditors, calculate how much you can afford each month and how long it will take you to pay off the debt fully. This way, you will know your limitations and discuss them with your creditors. After The conversation, ask if they can lower your interest rates, waive the late fees, or extend the repayment plan.
Filing for Bankruptcy
Bankruptcy is an option in a more severe debt crisis. It is a process by which individuals or businesses in debt seek relief from total obligation or discharge from certain debts. It might be best to get the help of a legal or financial professional to go over the consequences and positive impacts of bankruptcy, and also to let them review your situation to see what bankruptcy options are available to you. You can file two types of bankruptcies: Chapter 7 and Chapter 13.
Chapter 7
Chapter 7 is a liquidation bankruptcy. Before you file for this, you must understand the advantages and disadvantages of Chapter 7 bankruptcy to make an informed decision. The benefits of Chapter 7 include the discharge of most unsecured debts, protecting your property from creditors, and providing a fresh start with a clean slate. On the other hand, the disadvantages can include damage to your credit score for years, difficulty obtaining credit in the future, and the liquidation of some assets.
Chapter 13
Chapter 13 is a repayment bankruptcy. The advantage of this is that you can pay your creditors back over time with a manageable payment plan instead of in full. The primary disadvantage is that it takes longer to file for a Chapter 13 bankruptcy than a Chapter 7 bankruptcy and is more complicated.
Debt Consolidation
Debt consolidation is a method of repaying debt by taking a different loan to cover one or more of your debt balances. Applying for a debt consolidation loan would help you combine multiple high-interest balances to pay back in one lump sum with a much lower interest rate, painlessly consolidating them into a single payment.
Debt Settlement
Debt settlement is the negotiation of debt levels between you and your creditor. It involves reaching out to your creditors before they default on your account and settling for a fraction (usually around 50%) of the debt owed in one lump sum payment. Debt settlement typically lasts only a few months to a year, but it is essential that when you engage in debt settlement, you work with a credible debt settlement firm.
The Bottomline
Personal financial struggles can impact your business negatively if you’re not careful. As a business owner, it’s crucial to protect your business from such risks. By keeping your personal and business finances separate, having an emergency fund, getting insurance, borrowing wisely, and seeking professional advice, you can safeguard your business from personal financial struggles.
