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How Your Business Finances Affect Your Personal Finances

At this point, you know full-well how difficult being a business owner can be. Keeping tabs on the employees, assessing the condition of your store, and ensuring your finances are in order aren't always easy to manage. This is especially true when it comes to the latter. If the business finances aren't handled properly, it could ultimately affect your personal finances. However, as a new company owner, you might not be aware of what could happen. In this article, we'll be going over how your business finances affect your personal finances.

Your Credit Score

Whether it's to expand your business or invest into something, newer owners typically rely on small business loans to get themselves up and running. To get approved, they're going to need a decent credit score to be approved and obtain the amount of money they need. Business owners are going to be taking out more loans overtime.

So, where does the personal finance aspect come in? Your credit score is still tied to you regardless of what you use it for. If your business finances become intertwined with your personal finances, your credit score can be negatively impacted. Should your credit score be lowered, the amount you receive may be decreased or you could be denied outright until you manage to get your score up again.

Debt-to-Income Ratio

Your debt-to-income ratio basically gauges how much debt you currently owe and how much you make annually. One of the most common reasons why a person's credit score is lowered is because they have too much debt. Constantly taking out loans can end up causing more harm than good.

Not only does this impact how you receive business financing, having a high debt-to-income ratio can make it difficult for you to receive a personal loan or be approved for a credit card. Make sure to take some time going over the debt you have and planning out how to pay it off. It's highly recommended you pay off any type of small debts first. These can eat away at your budget quickly.

Your Taxes

Tax is something every company must pay, but they're not always easy to stay on top of. The rates can change at a moment's notice, and you'll be forced to pay more than usual. Personal income tax, which is tax deducted based off your wages and interest, can lower how much you make each month. Property tax is the amount you pay relating to the building you own. There are all sorts of taxes you'll be responsible for when you get into the business world.

However, there are ways for you to keep them from getting out of control. For starters, you can make your company into a limited liability company, which is basically an all-in-one package as it combines the best of the other three business structures. It gives you the ownership of a sole proprietorship, you can include anyone in it like a partnership and have the protection of a corporation.

Alternatively, you can save money on taxes by becoming the cosigner on their student loans, so you can net you considerable savings. Typically, you can cosign for your child's college education, but you can also cosign for your employees or apprentices as well. Through this process, you'll be able to help the primary borrower be approved, so they can get the education they need, while getting the education and experience to succeed within your organization for more well-rounded employees.

Insurance Premiums

When you open a business, you can expect to have quite a few insurance policies. General liability, worker's compensation, commercial property, and product liability insurance are just to name a few. As you'd expect, the premium payments may prove to be a little too much to handle. Combine them with the insurance policies you have in your personal life, and you could potentially face having to cancel some of them.


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