indicatorMoney and Financing

How personal finances impact your company’s growth

By ATB Financial 11 August 2020 5 min read

It’s a question all entrepreneurs must ask as they attempt to get their entrepreneurial vision off the ground: how am I going to fund my business?

There’s no telling what’s around the corner, so accumulating a strong financial foundation is vital for those first months when the company takes flight. Unless there’s a generous benefactor eager to provide funding without condition, generating the necessary funds will more than likely require an infusion of investment.

But how to convince a potential investor their commitment will pay off?


What is your financial character?

A killer business idea is not always enough. You’ll likely need to demonstrate to an investor’s satisfaction your financial acumen for running a company. Lenders will look at past practices, so if you’ve struggled financially in the past, amassed a low credit score or declared bankruptcy, all will be considered and weighed when it comes time for a loan, says ATB entrepreneur strategist Catherine Glambeck.

As a business strategist, Glambeck advises new entrepreneurs on the ins-and-outs of running a business. She says a popular misconception held by new clients is they can enter a bank and walk out with a generous business loan without any personal commitment .

“It just doesn’t work that way,” says Glambeck. “The lender will pour through your personal financial history. Are your credit cards maxed out? Did you take out a second mortgage on your property? There’s quite a few layers of what they call the character of the borrower.
They’re definitely going to look at how you’ve been managing your personal finances, because that gives them an indication of how you will manage your business.”


Keep your credit score high

“To strengthen their case for a business loan, an applicant should have a healthy relationship with the investing institution and a manageable existing debt load. The applicant must have a good credit score,” says Glambeck.

It’s easy to get into credit trouble. Some unscrupulous companies will issue lines of credit to nearly everyone. That includes people who have never had it, as well as those with bad credit. The catch? The cards come with a sky-high interest rate resulting in crippling monthly charges. Too many missed payments and your credit score can plummet.

Conversely a good credit score strengthens the case for the applicant’s financial character and might more easily entice the lender into offering better concessions, such as a lower-interest rate, or better conditions on the loan. The lender has clear evidence of the applicant’s past ability to make good on an investment.

“You don’t want to get in over your head taking on a lot of business debt and not have the business survive,” says Glambeck. “You want to be set up for success from the beginning.”


Separate your transactions

A good financial practice includes a clear demarcation between your business and personal life. Always keep your transactions separate.

Your business should have its own bank account and credit lines. It will make it easier to trace transactions in the future. Keeping separate accountings will make it easier to track your cash flow, knowing to the cent what’s coming in and flowing out.

“It's hard to know how much of your own money you are actually pouring into the business if you're buying your groceries, paying rent for your apartment and covering business expenses all out of the same bank account,” says Glambeck.


Get help from a strategic professional

Navigating the financial terrain might prove bewildering for a small business owner whose background is something other than accounting, but it’s essential to take stock of your personal skill inventory.

For the entrepreneur unable to hire a full time accountant or bookkeeper, Glambeck recommends easy to use software like Quickbooks to manage your day-to-day finances and turning to a financial professional for more complicated objectives like filing a tax return or strategizing growth.

Whether a computer program or a professional, outsourcing that work can free up more time to work on your business and keep you organized and prepared for future challenges.


Shift your business structure

Depending on its structure, a business will be assessed at different tax rates. An incorporated company is subject to a lower rate of tax in Alberta. A sole proprietor, however, will have to pay at the personal income tax rate, possibly meaning a higher tax burden.

There are administrative costs for incorporating, such as hiring an accounting firm or a lawyer to draw up the paperwork but the tax savings could be worth it.In many cases, you won’t be risking the same personal liability if the business, as a separate legal entity, fails. If there ever comes a time to sell, an easier exit strategy is possible under an incorporated structure.

An incorporated business can allow its owner to draw an income in various ways including issuance of dividends and offer investment incentives to a prospective investor.

“If you’re able to pay yourself and reinvest money you’ve made right back into the business, it’s a good sign the company has room to grow. At that point, it might be time to consider incorporating,” says Glambeck.


Keep money on hand for taxes

Like debt, a hefty tax bill can cast a long shadow over one’s financial history. Glambeck suggests putting aside extra funds for tax payments, keeping it in a separate account if possible, as well as working out with the government a prepayment schedule. This prevents the likelihood there will be an unpleasant surprise once the tax comes due.

“I’ve seen too many people who originally think they’re doing great, reinvesting money back into the business and paying themselves, and then realizing they have a huge tax bill,” says Glambeck.

“And now they’re scrambling for cash to pay.”

Maintaining good financial practices in your personal life will help to ensure your company will be better set up for success when it’s time to grow. Developing good financial habits now, will more help position you as a strong partner to invest in when the right time comes.

If you’re looking for a deep dive on everything you need to know around how to grow your business, our ATB X Accelerator program might be just the place for you. Alternatively, feel free to reach out to one of our entrepreneur strategists to explore where you are with your business, where you want to be, and how to get there!

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