my P&L statements year after year. Watching the bottom line grow from a negative to a
positive is proof that you're doing something right. The other side of the coin is that if you
see it in the negative, it's not time to panic. Take into account your cash position, your sales
leads, and your current expenses and make the necessary adjustments.
Personal Credit versus Business Credit
There will be a time when credit plays a part in your business. It's important to establish a
business credit report that is different from your personal credit report.
As a business owner, you have the unique ability to establish and build credit for yourself
and your business. It's great news if you're trying to grow your company, so you don't have
to rely solely on your personal credit every time credit is needed. Keeping them separate
will remove the headaches when you need your personal credit to work on your behalf, for
example if you buy a new house.
Your personal credit is established and linked to your Social Security number. Associated
with your number is a credit report that fluctuates with every credit check, new account
added, or late payment that you make. As you progress in life and want to use your credit
to buy a new house, then you'll want your credit report to show that you're a responsible
citizen and show creditors that you have the ability to pay back a debt.
In the business world, when one business issues credit to another business, it's called trade
credit. Fun fact: Trade credit is the single largest source of lending in the world.
Your trade-credit transactions, if formally conducted,are gathered by the businesscredit
bureaus to create your business-credit report using your business name and EIN (Employer
Identification Number) that you receive from the IRS.
If you're asking another business directly for credit, they can view your businesscredit re-
port with the EIN and see your creditworthiness. The major credit bureaus that compile and
provide copies of your business-credit reports are Experian, Equifax, Dun and Bradstreet,
and Business Credit USA.
There is one small flaw with business-credit reporting, and that is the information given to
them is voluntary. That is to say that the business extending you credit must formally re-
port your on-time payments to the reporting agencies for your payments to positively affect
your credit. The flaw is that they are not required to do so. It's the same if you extend a
customer net terms—you don't need to report the timeliness of their payments to anyone.