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Matherson: Separating finances as a startup founder

Separating Finances

So, you want to be a startup founder?

It’s going to take a great idea and a lot of hustle to get to where you want to be and you’re ready to put in the sweat equity. In fact, you’re ready to get started now building your business and brand.

Wait one second! Before you take off on your path to dominating your business sector, you’ll want to make sure you have your finances in order. For those who are just starting their business, the most crucial thing that they can do is separate their personal and business finances. 

Separating finances is easy and necessary

When it comes down to it, setting up your business’ finances the right way, in the beginning, pays off. It doesn’t just allow you to more easily do your accounting, build your business credit, and save you headaches later on, but it also allows you to appear professional.

It also isn’t hard to do things the right way. All you’ll need to do is open a bank account and apply for a credit card – which can take as few as a few minutes in a branch or online. It will be the best minutes you spend working on your business and after that’s taken care of you can get back to total world domination!

Here are 3 reasons to keep your business and personal finances separate:

It helps with accounting…and everything else

Setting up a bank account and getting a credit card in your business’ name is key to ensuring that you stay on top of your business’ books. The last thing you want to do at the end of the month or the year is to go through your personal bank and credit card statements and have to figure out which expenses were personal ones and which were for your business.

Not only does that create added work, but it also makes it harder to quickly know how your business is doing. You might think that you’re bringing in more than you’re spending, but if you aren’t keeping a close eye on your expenses you might have missed a few.

When you’re starting a business cash flow is king. It’s important to know your burn rate as well or the amount that you are spending of your original investment and income every month.  Having it all your expenses in one place makes it so much easier to have your finger on the pulse of your business so you can pivot if necessary.

Building your business credit

If you do all your business in your personal name, you don’t build business credit. While when you first sign up for a business credit card, you’ll likely have to personally co-sign but it will allow you to build a track record of borrowing and paying back money connected to your business.

You can also build business credit by asking for a line of trade credit from your suppliers like the company that you buy office supplies from. This will allow you to build up a great track record as a business.

Why is this so important if you have great credit yourself? Well, someday you might want to borrow more money than you could qualify for personally. Or maybe you’ll want to borrow money via a small business loan without having to co-sign it personally. If you build your business credit, both of these things are possible.

Another great reason to build your business credit is that, unlike your personal credit, anyone can access your business credit. That means that people who might want to invest in your business or just do business with you might pull your business credit in order to gauge how solid or trustworthy your business is. If you’ve been keeping all your accounts in your own name, you won’t have a good business credit score and you could lose out on business or investments.

It will save you headaches later on

There are a lot of problems that you might encounter if you don’t separate your personal finances from your business finances. For example, even if you start your company as a corporation or LLC, if you don’t separate your business’ finances from your personal finances, the argument could be made in court that you’re operating as the same entity. In that case, if someone were to sue your business they could also sue you. This essentially voids the reason why most people set their companies up to limit liability.

In addition, if you need to show your books to any potential investors or lenders, it won’t look professional that you’ve co-mingled your finances. Even if you have managed to build good business credit, they might not want to do business with someone who doesn’t know how to professionally run a business.

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Nate Matherson is the CEO/Co-founder of LendEDU. LendEDU helps consumers learn about and compare financial products. LendEDU was originally founded in Cedar Rapids in 2014.

Matherson: Separating finances as a startup founder | Clay & Milk
A central Iowa ag-tech accelerator has secured more backers and finally has a name. The Greater Des Moines Partnership first announced the accelerator last year, naming four initial investors. On Monday, the Partnership said the program will be called the "Iowa AgriTech Accelerator" and named three new investors. The new investors include Grinnell Mutual, Kent Corp. and Sukup Manufacturing, all Iowa companies. They join investors Deere & Co., Peoples Co., Farmers Mutual Hail Insurance Co. and DuPont Pioneer. Each investor has agreed to put up $100,000 for the first year of the accelerator. Startups entering the program will receive $40,000 in seed funding in exchange for 6 percent equity. Tej Dhawan, an angel investor and local startup mentor, is serving as interim director until the AgriTech Accelerator names a permanent leader. Dhawan held a similar role with the GIA before Brian Hemesath was named as managing director. As interim director, Dhawan said his main job includes hiring the accelerator's executive director, establishing a business structure and initial recruiting for the first cohort. The accelerator will place few filters, such as location and product, on the applicant pool, Dhawan said. "When you’re seeking innovation, innovation can come from every corner of the world so why restrict ourselves," he said. One area the the AgriTech Accelerator won't recruit from is biotech. For its first cohort, the AgriTech Accelerator will work out of the GIA's space in Des Moines' East Village, Dhawan said. A future, permanent home is still to be decided. The accelerator's program will host startups from mid-July through mid-October, ending with an event connected to the annual World Food Prize. The GIA, which the AgriTech Accelerator is based on, also ends with presentations at an industry event. The accelerator has also started lining up a mentor pool. The Iowa Corn Growers Association, Iowa Soybean Association and the Iowa Pork Producers Association have agreed to provide mentors, as has Iowa State University. While the AgriTech Accelerator is loosely based off of the GIA, it will differ in its business structure, Dhawan said. The GIA runs through a for-profit model for both operations and its investment fund. The AgriTech Accelerator will have a nonprofit model for its operations and a for-profit setup for its fund. Dhawan said the nonprofit model is being used so the accelerator can better work with other nonprofit partners, such as trade associations. "These are all organizations that are nonprofits and can be amazing stakeholders without ever having to be investors in the accelerator," he said. "It becomes easier to work with trade associations in their nonprofit role when we are also a nonprofit." When it's up and running, the AgriTech Accelerator would be one of a handful of ag-focused startup development programs in Iowa. Others include the Ag Startup Engine out of Iowa State University and the Rural Ventures Alliance from Iowa MicroLoan. Matthew Patane is the managing editor and co-founder of Clay & Milk. Send him an email at mpatane@clayandmilk.com.
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