Hooray for you! You have a new business, probably your first, and probably the one you’ve dreamt of having for a long time. There’s a lot you need to spend on, like the registration paperwork, equipment, materials, marketing—not to mention the paycheques of your new team.
Where are you going to get the money for all of that?
It probably won’t take you two seconds to say, “The bank”—but whose account will you be using? Your own, or the business’?
Now you might say, “Well, since I own the business, the business account would be mine, as well. So I might as well use my own money, right?” Wrong.
Why personal funding is the wrong funding for your business
Before we talk about how business loans and other forms of funding for an enterprise like yours would be a much better way to go, let’s first go into why personally funding your business is a bad idea.
Your business will look like some fly-by-night operation
There’s nothing less professional than not having a proper business bank account for your business. You can hardly expect your customers or business partners to trust you when you don’t even have one of the most basic of business essentials. And simply put, you need their trust to make it possible for your business to grow.
Figuring out your taxes will be a colossal pain
Do yourself a solid and don’t wait for tax season to learn this the hard way: figuring out what you can and can’t deduct when you draw funds for your business and your personal expenses from just one account is an absolute nightmare. Even worse, making mistakes while you’re at it could cost you both arms and both legs in fines and legal fees.
You’ll put your accountant in a straitjacket
Good luck going through each and every receipt and bank statement figuring out which of your expenses were really personal and which were for the business. Talk about a cosmic waste of time, and a great way to boost the chances of errors in your bookkeeping.
You’ll put yourself in a straitjacket
So maybe you’re thinking you’ll just be real careful tracking where all your money goes out of the one bank account. Even money says it won’t take long for this to get away from you, because as you know, transactions happen at a breakneck pace when you run a business, especially in the early days.
You’ll have no real idea how well your business is doing
For all you know, your business could be in the red (or about to be)—because you can’t readily tell where all your money is going, whether it’s on its merry way in or out. It’s just so important to be able to pivot as soon as you realise you’re bleeding money in one aspect of your business—but it’s well-nigh impossible to do this if your finances are a mess.
Good luck getting a loan
Chances are, you’ll have to take out a business loan some time, but the odds of you getting approved for one are next to zero if you’re still using your personal bank account for the business. And don’t bother trying to approach investors and other funding sources because they’ll need you to have a separate business account, as well.
It’s actually illegal
Singapore is the very last place on earth you want to even think about not starting and running a business by the book—and that goes double if you have a business partner (or partners). Not only will you not be fulfilling your fiduciary duties but you run the very real risk of being accused of having conflicting interests, or worse, misappropriating funds.
It’s not safe
Running a business means giving out bank details to people who are (when it comes right down to it) complete strangers. Customers, suppliers, logistics companies, and pretty much anybody who needs to pay you (or who you need to pay) will have access to your bank account, so it’s safer all round to have a separate account to give them.
If the business goes under, so do you
Arguably the best reason for not using your personal money to fund your business is the very simple reason that if the business fails, you could lose far more than just the enterprise of your dreams. See, you’ll be held financially liable for whatever debts your business incurs, and if you were already paying for your business expenses out of your own pocket, then…
There are better ways to get funding for your business
It’s quite natural for first-time entrepreneurs to pay for things out of their own kitty to start with. But there will come a time when you’ll have to take the training wheels off and give the business a bank account of its own (especially if things go according to plan).
So you’ll have something to put into that business account, do give some serious thought to the following:
Get an honest-to-goodness business loan
While banks might be the first lenders that come to mind when we think “business loan”, there are alternative lenders such as Capitall you can turn to for funding. Like the name says, business loans are specially meant for enterprises and often come with features like accounting tools and credit cards to help make things easier for business owners.
Make sure you get a business loan, though and similar loans you might get from a licensed moneylender like Crawfort. They’re generally not a good idea if you mean to use it for your business, not just for the same reasons you shouldn’t use personal funding, but also because of less business-friendly interest rates and other features.
Other alternative business funding sources
Business loans are far from the only better-advised way to fund your business, so to wrap this up, we heartily encourage you, again, to not use your personal money to fund your business, and explore the options below, instead:
- Get a government grant
- Get an angel investor
- Get a venture capitalist
- Get revenue based financing
- Get crowdfunding
- Get family and friends to help