The benefits of following these habits are many though we outlined a few advantages one may have. The main reason you should draw a line between your personal and business finance is it helps at tax time and you can evaluate your individual and business growth.
We will get into taxation benefits in this article however we will let you know how it can benefit you in the long run.
To expand and grow business, business owners are often in need of financial aid. When you have a clear log of business and personal finances separately, you have a clear idea of how much personal finance you can use.
Though it may seem simple to keep business and personal funds in one account, in the long run keeping both – business and personal finances – separate can have many benefits such as When you separate your personal and business finances, you will have a clear idea about your business cash flow. Furthermore, you can protect your hard-earned money during hard times. Moreover, having a business account on invoices and company documents creates a positive impression on your business. Benefits are many, though many business owners struggle in separating business and personal finances, therefore we have come up with some tips to make things easy by separating both finances.
1. Obtain the employer identification number
You can consult a legal advisor to obtain legal identities such as private limited, LLC, LLP, S Corp, and sole proprietorship for your business to get an employer identification number. It can be received online in a few minutes. By doing so, you will have many advantages to protect your finances from business losses and debts.
2. Get a separate business banking for business transactions
If you are concerned about keeping personal and business transactions, expenses, or finances separate, opening a business banking account will give you peace of mind by allowing you to send and receive money and also make separate transactions. With business banking, you can separate your business financial transactions with ease, therefore getting a clear picture of business expenditures.
Business banking comes up with plenty of benefits that help avoid tax issues and accurate and clean business financial records, and having business banking gives the impression that your business is legitimate. When you write checks from your accounts, it makes the audit process complicated. If you are serious about your financial goals, then the business is going to be the best thing in the long run.
3. Acquire a business credit card
Business credit cards come with plenty of offers and perks when you make payments online and offline. A separate business credit card can be used to make purchase-related business only, therefore creating separate logs of business transactions. In case you use a personal card for your business transactions, it will give an accounting nightmare for your bookkeeper who handles financial transactions. It will make his work tedious if you continue using the personal card for business expenditures.
4. Don’t mix personal expense receipts with business
With the world turning digital tons of business tools allow you to track your expenses, both personal and business. The habit of keeping expense records physically by organizing receipts in separate folders to avoid mixing expenses is a great way to keep personal and business finances separate.
Furthermore, it is easy to cross-check online transactions made through debit or credit cards when you have receipts. In addition to this, if you keep proper records of receipts, you can avoid fines during audits. A habit of keeping receipts incurred for business and personal purposes separately is always a great way to track expense records along with many other benefits at tax time.
5. Give salary to ourself
It is premium advice that financial advisors always give. It helps you track your earnings, simultaneously separating your finances from the business. So in case you pay yourself every month from your business account, you can easily track and separate your business and personal finances.
6. Don’t pay your bills from your business finance
As a new business owner, you might be running your business from your home. Even though you have an office in your home, you shouldn’t pay the electricity bills completely through a business account. You should also use personal finance to pay common bills to maintain office- personal finance is on track.
There are many other things such as a car, smartphone, and other utilities that you might use for both business and personal use. In this case, you should have a clear picture of how much finance you can use from the office and how much from your account. In case you have been using the common utilities for personal use then you should pay for the same from your account accordingly.
Whether you are a business or just setting up a new business, you should always follow the golden rule of keeping personal and business finance records separate which will help you in many ways. When your business needs financial support during that time lenders may analyze both business and personal finance to decide on your company’s financial status.
Moreover, you will have peace of mind when you have business and personal finance separate so you can evaluate where your company stands and what your financial status is. It will give a clear picture to make you decide if you can invest in your finances and how much financial support you can provide when your business needs a boost.
In this article, we have listed a few benefits of keeping personal and business finance separate. Though this good habit will also give you peace of mind during audit and tax time. We hope you find this article informative and useful.