Working Capital Mistakes You Should Not Make
If you own a sole proprietorship any debt your business carries will likely affect your personal finances and credit rating. And even if you are incorporated or protected in some other way from your business’ debt, unless you borrow money in the name of the business you could still be liable for its debt if you are a co-signer.
But even if you are fortunate enough to be protected from your business debts, remember that any personal funds you invest into your business carry the same risks as for any other investor.
If no one else will invest in your troubled business you might not want to as well. Instead, look harder at ways to cut costs to minimize the need for you to infuse your business with your personal funds.
Retirement Savings are for Retirement
If you are a long way from retirement, you might be considering cashing in some of your retirement savings or other investments. Before doing this consider the tax consequences now and if you do not replace these funds you will suffer years down the road.Never use your retirement savings to fund a floundering business unless you are absolutely positive you can make it. Otherwise, you are not only wasting money now, you are hurting your chances for a more comfortable future.
Your House is Not Business Collateral – It is Where You Live
Home equity loans and lines of credit are hard to get now and unless you already have great mortgage terms you should not add more debt to a house that may have declined in value during the housing market crash. In fact, if your home equity has declined significantly, you may not even be able to get a line of credit or second mortgage.Never, under any circumstance should you risk losing your home to save a dying business. If the business does go under you could lose both the business and your home.
Cashing in Other Investments to Invest in Your Business is Risky
Cashing in your investments (as of this writing, December 2008) is a really bad idea. The stock market has not recovered and you have probably already lost money.To cash things in now to fund a struggling business is even riskier than investing in the stock market! Bear in mind that the key to successful investing is diversification. If you invest too heavily (or worse, exclusively) into your own business you are not diversifying could be playing a dangerous game with your own money.
Cold Hard Business Tips: Whenever possible, let outside investors carry the risk of investing in your business during troubled times. Why? If you are the sole investor and your business is losing money, you are losing twice: first, from the money you invested and the salary you cannot afford to pay yourself. If your business relies exclusively on you to cover its expenses, it is more likely to struggle or fail.
