Simple steps to separate personal from business finances – Certain things don’t mix well, like your personal finances and your business. Keeping these things separate not only helps you reduce problems, it also greatly simplifies things and makes it easier to manage your finances.
According to a report by https://squareup.com, these facts can help you to know how to start separating out your personal and business finances.
*Put your business on the map:
If you haven’t already, establish a separate legal entity for your business, such as an LLC, C Corp, or S Corp. To know what structure may work for you, it is always best to get advice from a legal expert. Establishing a separate legal entity for your business has many advantages, including the ability to protect your personal assets from business debts, losses, and lawsuits.
*Get a business credit card:
Opening a business credit card allows you to stop using personal credit cards for business transactions, and it is an easy way to draw a clear line between personal and business expenses. You can also protect your personal credit. Most business card transactions won’t appear on your personal credit reports unless you default. (And maxing out your personal cards can cause your credit scores to drop by 100 points.)
Equally important, a business credit card helps you build stronger business credit scores, as long as you pay your bills on time. A strong business credit profile boosts your borrowing power, lets you qualify for loans with lower interest rates, and establishes your legitimacy as an entrepreneur.
*Open a business current account:
If you are serious about keeping your personal and business finances separate, opening a current account strictly for your business is a no-brainer. If you are strict about using it (along with your business credit card) for business needs and business needs alone, then getting a clear and complete picture of these expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements.
*Pay yourself a salary:
You are your own boss; make it official and write yourself a cheque each month from your business current account. Transfer this to your personal account, and then behave as you would if you were working for someone else. That is, once the money runs out, tighten your belt and wait patiently for the next payday. Regarding personal needs, treat your business current account and your business credit card as you would treat a former employer’s — hands off.
Separate your receipts and keep them:
What better way to demonstrate your commitment to keeping your personal and business expenses separate than by physically separating your respective receipts? Think good old-fashioned folders. This simple practice helps you sleep easier.
*Track shared expenses: One advantage of being a small business owner is that many business expenses are tax deductible. Taking a prospective partner to a nice lunch to talk things over? Stocking up on coffee for your employees? Write it off. At the same time, avoid the temptation to use the business card for personal needs. It can be a pain to ask a cashier to ring up purchases as separate transactions every time, but it is worth it. Not only do you make things easier for your accountant come tax time, but you also protect yourself by keeping a spotless financial record and, continuing the keep-the-receipts-separate discipline that can save you so much headache down the road as your company grows.
*Keep track of when you use personal items for business purposes: We all wish we can drive a company car and fly a company jet. But for most small business owners, the car that gets you to the gym in the morning is also what gets you to that big marketing convention in another state. The same thing goes for your cell phone, and any item that you use regularly for both personal and business purposes. Any expenditure that you can legally write off should be written off to save you money come tax time. Your tax advisor can help you figure out what is deductible, what is not, and how to keep the right records.
*Educate your employees and partners:
You know the difference between a personal and business expense; now make sure that the other people involved in your business do, too. Get everybody on the same page, committed to the same goals. Staying disciplined is easier if others are doing it with you.
At first, it may not be easy to keep things neat and tidy. But even if you can work on a few of these tips, you will save both time and money during the next tax season, an audit, or even while looking for financing. Strong businesses grow by careful, incremental improvements, and learning to keep your personal and business finances separate is the perfect place to start.