Businesses often start small and then grow according to how quickly they succeed. Although there are those who find investors before they ever start their businesses, many entrepreneurs are their own primary supporters. They know their idea has merit, so they do what it takes to establish themselves in the local market.
Rather than trying to open a manufacturing facility or retail shop right away, it may be a smarter move to test the waters before jumping in without a safety line. Some people start out doing craft shows or industry expos and then eventually have enough capital to justify opening their own facilities.
Starting small is a way to keep costs low and potentially allow the entrepreneur starting a business to continue maintaining other streams of income, such as outside employment. Unfortunately, starting small and scaling up is often one of the reasons people make a big financial mistake. Specifically, they commingle personal and business resources instead of maintaining clearly separate financial accounts.
What is financial commingling?
If you have just started a business and only need to complete a few small transactions on behalf of the company, it may seem like an unnecessary challenge to open a business bank account. However, without one, your personal resources could be at risk.
Anytime you use personal accounts or assets for business purposes, you potentially put those assets at risk later. If a creditor or plaintiff in a lawsuit against the company finds out that you commingled personal resources and business assets, they could potentially try to make a claim against your personal property.
Even if you create a limited liability corporation (LLC) to shield yourself from direct financial liability, the use of personal bank accounts and assets for business purposes might eventually make your personal resources vulnerable in court.
Clear financial separation is crucial for your protection
The easiest way to avoid accusations of commingling is to have separate financial resources used for the business from the earliest transactions. There are plenty of mistakes and omissions early in the business development process that could put your organization and personal finances at risk.
Learning more about the challenges of starting a company can help you avoid the pitfalls that often come with a new business venture.