5 Mistakes That Small Businesses Make That Damage Their Credit
/For companies aiming to tap into external funding or buy goods on credit in the future, establishing a solid business credit profile is essential. Lenders, investors, potential partners, among others, frequently evaluate a business's credit scores and ratings to assess the risk involved in partnering with that business.
A lack of a current business credit file could impede growth prospects. Recognizing this, numerous small business owners work diligently to keep their business credit files current. Nonetheless, there are times when they commit errors that inadvertently undermine their objectives. Below are five widespread mistakes to dodge while working to develop and strengthen your company’s credit.
Employing Contractors Who Do Not Report Credit Transactions
The advancements in online technology, software, and web development have simplified vendors' process of reporting credit activities following a small business's payment or transaction completion.
Establishing a credit line with a vendor who does not frequently report these activities to credit bureaus hinders your ability to build credit properly. Ensure that the contractors and vendors you engage with are those committed to reporting your punctual transactions to the main credit bureaus.
Not Maintaining Accurate and Up-to-Date Records
Small business owners must understand that ignorance is not a virtue in managing a successful enterprise. Neglecting to maintain accurate and timely records can cause significant, easily missed issues. The realization that records are inaccurate comes too late when faced with scrutiny from entities like the SEC or IRS.
Proper accounting records highlight strengths and weaknesses, warning owners early about potential risks. You can contact the best tradeline companies to help maintain your business's credit record and avoid these mistakes.
Not Utilizing Business Credit
Many owners of small businesses have such a strong aversion to risk that they shy away from utilizing business credit. However, acquiring business credit cards and securing lines of credit can significantly aid in growing the business and boosting revenue. Without leveraging credit, expanding your small business becomes a more challenging endeavor. Avoiding business credit entirely is a misstep you don't want to make.
For those business proprietors concerned about debt, a prudent first step could be obtaining a single business credit card. By using this card regularly and ensuring it is paid off each month, you can gently establish a business credit history while keeping debt levels low or non-existent.
Ignoring Taxes
Overlooking tax responsibilities can seriously harm your small enterprise and trigger issues with the IRS. Taxes tend to accumulate rapidly when overlooked, even for a brief period. Incorrect submissions of your tax returns could lead to an IRS examination of your business, resulting in fines and additional expenses. It's advisable not to gamble with such risks. Diligently completing and submitting all required tax documentation on time is essential for entrepreneurs.
Exposing Personal Assets to Danger
Initiating your business with the appropriate legal structure is crucial to safeguard your personal assets against business debts. It's advisable not to jeopardize your personal property or assets when securing credit for your business.
Opting to operate as a sole proprietor while obtaining business credit can also be risky. While possible, it means you bear personal responsibility for all the business's debts if issues arise. Additionally, sole proprietors lack a separate corporate tax ID, as all transactions are tied to their social security number, increasing legal vulnerabilities.
Final Thoughts
Small business owners can improve their chances of thriving by identifying and dodging these five typical blunders. Constantly monitor and modify business tactics to secure sustainable growth and longevity.