National Financial Literacy Month is here, and award-winning business and financial literacy coach Dr. Sharita Humphrey recently shared her expertise with our BGV community. In this session, Navigating Business and Personal Finance, Dr. Humphrey offered crucial takeaways for building a strong financial foundation for your business. Here's a quick summary:
Key Takeaways:
Separate Business and Personal Finances: Maintain distinct business and personal transactions accounts. This simplifies record-keeping and tax filing and demonstrates professionalism. It also avoids commingling funds, which can lead to penalties and higher taxes.
Build Business Credit: Establishing business credit is crucial for securing loans and future growth. A good personal credit score is also essential, so monitor both reports regularly. Aim for a score above 720 for optimal loan approval.
Leverage Business Credit Cards: Use business credit cards strategically to build business credit and potentially earn rewards. Remember that most cards consider your personal credit score initially.
Budgeting is Key: To manage cash flow effectively, create separate budgets for business and personal finances. To solidify the separation, pay yourself a regular salary, even as a solopreneur.
Minimize Credit Card Utilization: Keep your monthly credit card utilization ratio below 30%. This demonstrates responsible credit management to potential lenders.
Monitor Your Credit Reports Regularly: Obtain free LexisNexis reports annually to monitor everything that could impact your creditworthiness beyond what's reflected in traditional credit reports.
Understand the Role of D&B and Experian: Dun & Bradstreet (D&B) plays a significant role in business credit, similar to Experian for personal credit. Building a positive D&B record is essential.
Business Credit Cards and Reporting: Not all business credit cards are reported to business credit bureaus. Understand which cards do before applying to optimize credit building.
Traditional Banks and Loan Applications: Building a strong relationship with a conventional bank is crucial for future loan applications. This requires consistent budgeting, saving, on-time tax filing, and responsible debt repayment.
Resources for Small Businesses: Consider using QuickBooks or Wave to manage finances. NerdWallet and Bankrate offer valuable resources for comparing interest rates on savings accounts.
Debt Repayment Strategies: When faced with debt, consider the snowball or avalanche method. The snowball method prioritizes paying off smaller debts first for quicker wins, while the avalanche method tackles high-interest debts first to save money on interest charges. Ultimately, the best approach depends on your specific financial situation.
Manage Financial Stress: Financial stress is common among entrepreneurs. Budgeting, building an emergency fund, and understanding your money beliefs can help alleviate this stress.
High-Yield Savings Accounts: High-yield savings accounts are a great way to earn interest on your emergency fund. However, consult a financial professional to explore other investment options that might suit your goals.
Paying Yourself First: Always prioritize paying yourself first to build a safety net. However, balance this with addressing high-interest debt to avoid accruing significant interest charges.
By following these tips, entrepreneurs can establish sound financial habits and build a strong foundation for business success. Go deeper with Dr. Sharita her course Financial Chaos to Cash use code: NFLM2024 at checkout. Stay connected with her: Facebook Group and Instagram.
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