A serious startup financial mistake too many entrepreneurs make

A serious startup financial mistake too many entrepreneurs make

On Behalf of | Jul 28, 2021 | Business Law

Starting a business is something that requires a lot of investment. Many entrepreneurs maintain outside employment during the early stages of business development. They may not formally create the company for weeks or even months during the planning and development stages.

Taking your time while planning your business helps ensure you address every necessary concern and adequately protect yourself. However, the more slowly someone develops their new business, the greater the potential risk that they could make arguably the most common financial mistake made by entrepreneurs.

People starting businesses mix personal and business assets

Maybe you haven’t decided what to name the company yet, or perhaps you want professional help with the business formation paperwork. However, you still need to start talking with suppliers or making other plans for your company.

When you order a prototype or invest in other business needs, you might use your personal checking account or credit card to cover those costs. After all, all of the funds going into the business are ultimately yours anyway.

Unfortunately, commingling business assets with your personal assets or vice versa can undo many of the protections you receive by starting a business. If the company eventually faces a big financial claim or a lawsuit, your early financial transactions could put your personal assets at risk. Plaintiffs bringing a case against you could point to that commingling as a sign that they can make a claim against your personal assets, not just the company’s assets.

Starting a business checking account and maintaining separate finances is very important during the early days of business formation for your protection.