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How To Know Which of Your Entities to Invest In

If you don't have multiple businesses or LLCs, are you even an entrepreneur?


If you are, then you're probably not sleeping much or juggling a lot of things at once. You're probably up at night wondering which entity you should seek funding for.


In my Credit Stacking mentorship, I always like to say to prioritize the strongest one first. Then focus on the next "strongest" entity.


What do I mean by "strongest entity?"


For me, there are four categories I use to define what makes an entity strong:


  1. Type of entity (what does the business do?)

  2. The age of your entity.

  3. Your cashflow.

  4. Previous banking relationships.



How to Know If Your Entity is "Risky"


When you start a business, you are asked to clarify what type of business it is so you can get a North American Industry Classification System (NAICS) code.


This code classifies the risk of the business and is the most important factor out of these four categories.


Brick-and-mortar stores tend to be more high-risk than marketing and consulting companies. They’re just less likely to sink.


Keep that in mind as you're considering what business is your "strongest" and needs the highest prioritization.


Age of Your Entity


When checking on the pulse of your business, there is power in age.


A business with six years of age will generally get more funding than a business with two months of age.


The reason behind this is to show your business can actually stay afloat. A recent study by Lending Tree found that new businesses have a nearly 20% failure rate within the first year.


No bank wants to put money in something unstable where the business owners can't pay off their debts.


So your "strongest" entity may be one that's less "risky" than others.



Which of Your Entities Brings In The Most Cash?


A bank cannot see how much money you have made in the past.


They only see the cash flow. In short, anything that's not going through the business checking account cannot be seen by the bank.


So if you have a business that's bringing in a lot of cash, you're going to appear more attractive than a business that has a low cash flow.


Prioritize your business that is bringing in more money.


Previous Banking Relationships


Say you have a business with a riskier NAICS code, but you've been banking with one specific bank for more than five years. That business may be a better option rather than a newer business and a stable NAICS code.


This is similar to the age of your business, and seniority rules.


Sometimes it could be both situations at once. Maybe "entity A" gets a Chase card while "entity B" gets a Bank of America card.


Balancing Your Entities


Every situation will be different, but remember banks prefer an older, low-risk business with a good cash flow where someone has been banking with them for several years.


So while I have key points to look out for when you're considering which entity to fund, you know your entities and which one needs priority funding.


If this decision is still overwhelming, consider joining the Credit Stacking community. We have weekly coaching calls where you can participate in a Q&A with me and other seasoned experts to help you achieve financial freedom.


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