Using One Business to Finance Another?

[vangogh]

I'm not sure how many here have more than one business. If you do have more than one do you use profits from one to help finance another or do you like to keep things completely separate?

Many of us who do have more than one business, particularly when those businesses are online, probably tend to tie them all in closely with out personal accounts and so may just see all the money as one.

It's also possible you operate several businesses under one business entity and the money will move back and forth.

In any scenario do you see all your businesses as ultimately one entity and move money freely between them or do you prefer to keep the finances of each completely separate?

[cbscreative]

I definitely favor the crossover. Success in one provides the funds to start another. Success in as many as possible brings income diversification. I think some caution is required though. You should have a stable income in at least one area before expaning to another. I view it as not having all eggs in one basket. I would want to be very careful not to let one drain the other and become a burden.

[vangogh]

I guess the important part is to keep all the accounting straight. Say you use one business to finance another. Would you loan the new business money, consider the first business as an investor in the second? Am I making this all too complicated?

[cbscreative]

Now you're venturing into those aspects I hate dealing with. My approach is to focus on making things work (earning the money) and turining over the details like that to someone who knows the answers (hopefully, someone like Evan or David will post an answer).

[vangogh]

I'm hoping the same in regards to Evan or David or anyone else who knows more.

I'm like you. I'd rather deal with earning the money and letting someone else deal with the other things and so far my finances have allowed me to not have to worry about those extra things. I'm expanding my business though and thinking it's good to be prepared. And while I don't like to deal with that extra stuff I do know a little and don't mind learning more.

[KristineS]

I think dealing with the money will be a challenge for me if I ever do go out on my own. My problem is the things I like to do I really like to do and those I don't I'd just as soon hand over to someone else. So I'm guessing, if I get to that stage, I'll find an accountant.

[Spider]

Originally Posted by KristineS

I think dealing with the money will be a challenge for me if I ever do go out on my own. My problem is the things I like to do I really like to do and those I don't I'd just as soon hand over to someone else. So I'm guessing, if I get to that stage, I'll find an accountant.

Know this, Kristine - Never ever hand over so much control to someone else that you don't know what's going on. You want them to do the donkley-work but you keep control and make the decisions.

Secondly, don't worry about it now. Any problems having lots of money will cause can be easily solved when you have the money to buy a solution.

[cbscreative]

Originally Posted by Spider

Secondly, don't worry about it now. Any problems having lots of money will cause can be easily solved when you have the money to buy a solution.

I love that. It pretty much sums up what I expect as those "problems" begin to materialize.

[KristineS]

Originally Posted by Spider

Know this, Kristine - Never ever hand over so much control to someone else that you don't know what's going on. You want them to do the donkley-work but you keep control and make the decisions.

That would not be a problem for me Frederick. I like to know what's going on and I don't trust anyone else to make decisions for me or about me. Having someone else do the donkey work is lovely, but the final decision making power will always rest with me.

[Evan]

This can tie into your multiple businesses thread too. Are they all under one umbrella company, or are they seperate? I'd say it's critical to keep track of everything seperate. But to tie in your account software thread as well -- programs such as QuickBooks offer "class" tracking. All your income/expenses would then be associaed with each "class". So you could create an income statement and see that Biz A is losing major money, while Biz C is flourishing. If it's under one company, then there is no problem with commingling the funds. As for having seperate entities, I wouldn't commingle the funds. That's simply bad business.

If you have seperate entities, then you do need to use a bit of caution. Let's say you're XYZ Corporation, and the sole shareholder/officer/employee. You want to loan yourself money to start ABC Enterprises. Even though it is JUST you, and it seems minor, you really need to create a contract stating the amount of money being borrowed, the length of time, payment frequency, and the interest rate. The interest needs to be a reasonable rate, so no credit card offers of "0% for the first 2 years" deal. The IRS won't buy that. And that interest then legitimately becomes business income / expense, depending on the loaner and loanee.

If you are a corporation or even an LLC and you don't document these things in writing, you could end up "piercing the corporate viel" and losing the legal protection that you wanted. So tread carefully in those instances.