While it is possible for almost anyone to build a small business, not all small business owners are financial experts. It is extremely important to have some basic knowledge about balancing your books in order to ensure that the business stays afloat.
You should have a credit score for your small business so that it is possible to distinguish between business and personal financial risk. As a forward-looking small business entrepreneur, you need to understand that credit has the ability to impact important areas such as raising capital for business development. A business credit report could influence your loan amount and the interest rates you pay on your insurance premiums etc.
Here are some basic tips on credit management that might be helpful to all small business owners.
• Know if you already have a credit file for your small business
As a small business owner, it is your duty to know whether or not you have a credit profile for your business. If not, then you can build one by submitting an application to get a unique identification number for the business. This will kick start the process of building a credit profile.
• Develop a credit history for your business
At the time of starting off, several small businesses might utilize personal finances and credit to get the business going. However, it is important build a credit history for your small business. How? For instance, you can put expenses like business phone line bills in the name of the business and utilize a commercial bank account for paying the bills.
• Avoid focusing only on new customers
Nearly all businesses tend to think about long-term relationship building with customers, based on the foundation of trust. But the truth is that almost 80% of bad debt revolves around those business relationships which are at least a year old. What one is trying to say is that it is naïve to think that management of credit risk is a one-time process. It is vital for small business owners to assess credit risk for all vendors, suppliers and customers on a regular basis. It is equally important to look out for trends within business credit profiles that might point towards impending trouble.
• Don’t ignore business fraud
Several small businesses are anxious to develop relationships with new business partners, vendors, suppliers and customers. But they might tend to ignore or simply overlook danger signs such as unusual references, ‘extremely favorable’ terms and a questionable business history.