Starting a business? Avoid these mistakes and you’ll save yourself a lot of hassle, frustration, time and money!
- USING A PERSONAL BANK ACCOUNT. Not only is it going to be a nightmare when it comes to sorting out your accounting for tax season but not using a Business Bank Account cuts you off entirely from any access to business financing. Do yourself a favor and make your business official by opening a business bank account. There’s just 3 simple steps. 1) Get a EIN tax ID from the IRS (takes less than 10 mins), then 2) file your business within your state as an LLC, Corp, S-corp, etc. We recommend filing as an LLC and electing as an S-Corp for these reasons. Once you’ve done that, you can easily open a business bank account. We recommend Bank Novo. Super easy, super quick, no fees for ACH transfers, wires, very good service. Click here to get a $40 credit when you open your account.
- KEEPING FUNDS IN EXTERNAL ACCOUNTS (PAYPAL, SHOPIFY, STRIPE, VENMO, ETC) Similar to using a personal bank account, keeping your funds in external accounts is going to make your tax accounting more of a nightmare. Instead set up auto transfer your income to your business bank account on a regular basis (weekly, bi-weekly, etc). Lenders typically will not consider external accounts when qualifying a loan. By depositing all your income into your business bank account, it will improve your balance and ability to qualify for a business loan.
- APPLYING FOR FINANCING AT THE LOW SEASON Are you a seasonal business? Even if you don’t need funding when you are at your best months of the year, it is precisely the best time to apply for financing. Because lenders always look at the 3-4 recent bank statements, you’ll be able to qualify for a larger amount when your statements are at their maximum. Don’t need the money now? That’s ok, apply for a Business Line of Credit. With a business line of credit, after a small activation fee, you only pay fees / interest when you withdraw from your line of credit. So max out your line of credit and save it for a rainy day. When / if that day comes, you’ll be prepared to weather out the low season.
- OVERDRAFT / NEGATIVE BALANCES We know mistakes happen and money can be tight but do yourself a favor and create a buffer in your bank account to avoid any overdraft days throughout the month. Lenders factor in the number of overdraft days into your financing. Keeping a positive balance throughout the month will go a long way in getting you qualified for your business loan.
