Keeping your personal and business finances separate is essential regardless of the nature and size of your business. It is crucial for your legal protection, taxation, your business’s image, and proper organization in your business. With separate finances, it will be easier to make business decisions and you will avoid risking losing your personal assets. This article highlights some tips that can be helpful in separating personal and business finances hassle-free.
Get a Business Bank Account and Credit Card
The first step is to ensure that you have a separate account and credit card for your business. Having the two will help in keeping your cash and expense payment separate, and in building the credit score for your business. You could open your bank account in the same place where you have your personal account for convenience. However, don’t hesitate to move elsewhere if you can find better deals. Check your business requirements and go for a business account that will help you meet those requirements. The same applies to credit cards.
Separate Business and Personal Expenses
The next thing you should work on is separating your personal and business expenses. Firstly, you will need to educate yourself on what qualifies as a business expense. This will keep you from using your personal finances to pay for business expenses and vice versa. For instance, if you run your business from home, you should consider a home office deduction.
This ensures that the space in your home dedicated to the business is paid for from the business account. However, your home office has to meet the IRS guidelines for you to claim the home office deduction. Other examples of business expenses include salaries, rent, insurance, car expenses and retirement plans among others.
As you strive not to pay for business expenses with your personal finances, you should do the same for your business finances. Don’t take a vacation with your friends and charge it on your business credit card. When you get receipts, keep them separate for accounting, tax, and audit purposes.
Have Clear Guidelines for Taking Money in and Out of Your Business
Most business owners will write themselves a check from their business account every month or after reaching a certain goal. By adopting such a plan, you get to enjoy your hard work without draining your business finances. This is way better than withdrawing some cash from your business account every time you need to pay for a personal expense. It can also keep you disciplined when it comes to personal spending since you can only spend what you have predetermined to withdraw each month or after a specified period. Thus, have that guideline and stick to it.
You should also have clear guidelines when it comes to using your personal finances for the business. What happens when you deposit some money from your personal account to the business account? Will you treat it as a loan, equity or capital? If it’s a formal loan, what interest will you charge? Ensure that all these transactions are documented properly.
Ask for Professional Help
Online resources such as I’ve Tried That are super helpful when it comes to finding tips for your business. However, as you search online resources, you should also consider asking for help from experts especially where things are not clear. For the issue of finances, you can talk to a qualified and experienced accountant.
With separate personal and business finances, accounting for each entity will be so much easier and you can have a piece of mind knowing that in the event of an audit, you are safe.