Business Finance vs. Personal Finance: What's the Difference?

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Business Finance vs. Personal FinanceIf you’ve been managing your own personal finances for years, how hard can it be to transition to managing your business’s finances? Finance is finance, right?

Not so, say experts. One of the biggest learning curves for business owners is learning the differences between business and personal finance, and how to manage them accordingly. A recent article on cnbc.com takes a look at some of the differences. Acknowledging that there are some tactics that work well for both individuals and businesses, including reducing expenses and long-term investing, the article says that most other tactics simply don’t.

One big one is leverage—using any of various techniques, including borrowing money, to multiply gains. But the downside is that losses can be multiplied, too. Which is why in personal finance, this is nearly always a bad idea. Using leverage in personal finance can mean devastating losses, as in your car or even your house.

But as cnbc.com points out, business is another matter. In business, there are many situations where leverage makes solid financial sense. In fact, most businesses will use leverage at some point to build their businesses or increase their profit margins. And within a business, leverage has a tremendously nice upside. If you're able to borrow money, that means you can get by with a smaller investment in that business—and if you turn a profit, that means the ratio between your investment and the profit you make is much larger. Your percentage profit can be enormous, thanks to leverage.

At Business Financial Services, we’ve seen time and time again how borrowing money at the right time and under the right conditions can work for businesses in nearly every sector, in all parts of the country. In fact, that’s why we do what we do: Offer business loans to small and medium-size businesses.  To us, there’s nothing more satisfying than investing in the success of U.S. businesses

And while loans of $4,000 to $2 million are what we offer, the BFS brand is about so much more. We’re all about helping businesses grow and reach their potential, being a champion to small business and recognizing the tremendous contribution small business continues to make to the U.S. economy and the communities of which they’re part.

We’re strong believers, based on our own experiences with our small-business clients, in the power of working capital to enable business owners to grow and expand their businesses in ways they couldn’t otherwise. And as they’re continuing to build their enterprises, they’re putting money back into the economy by doing business with all kinds of other companies, hiring and supporting all kinds of worthy causes. This is what the American Dream looks like to us.

And, for business owners continuing to learn the many differences between business and personal finance, some additional advice from entrepreneur.com: Keep your business and personal finances separate! This may sound obvious, but you’d be surprised how often business owners commingle the two. Although it’s easy to let the two become intertwined, entrpreneur.com offers four basic practices for keeping them separate:

    • By all means, keep separate checking accounts. This helps not just in transacting but also in record-keeping, especially at the end of the year.

 

    • Use a business credit card—for much the same reasons as keeping a separate business checking account.

 

    • Make it official. Establishing an LLC or S Corp not only makes your business distinctly separate, it also lends some protection to your personal assets. Have an analysis done to see what path makes the most sense for you.

 

    • A plus for filing taxes. Business accounts make it easier to file and get legitimate deductions, such as business credit card interest.



Image courtesy of Pixomar / FreeDigitalPhotos.net

 

Have you used leverage to build your business? Has getting a loan made a difference in how you’ve been able to grow or expand?


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