Once you start a business of your own, you need to realize that personal finances should be separated from the business ones. It is very easy for business owners to confuse personal finances with business finance and end up bankrupt.
Besides making sure that your personal finances aren’t impacted if the business fails to perform well, there are numerous benefits of separating business from personal finance. Clarity in business finances will help you save on your taxes.
To help you separate business finance from personal finance, here we mention some tricks you can follow:
Set Up Separate Checking Accounts
If you have separate bank accounts for personal and business finance, then you shouldn’t be concerned about the two mixing together. If you have maintained due diligence in ensuring that the right account was used for the right transaction, then you have nothing to worry about during tax time. Even your bank statements can be enough for calculating tax returns.
Credit Card for Business
A business credit card will help you build the credit history for your business separately. Since your business is a completely separate entity, you should treat it as one by differentiating between your credit cards. A separate business credit card will help you plan for business expenses without bringing in your own finances to the mix.
Give Yourself a Salary
While you are starting with your business, you should give yourself a fixed salary from the business account and shouldn’t exceed it. Most entrepreneurs follow this policy until they have gathered significant cash, which they can then invest back into the business. By taking home a fixed salary, you will make the flow of money between your own account and the business bank account extremely easy.
Set a Business Budget
When your business faces cash flow issues, it is best to make a business budget and follow it religiously. The budget for your business will put your expenses on track and keep your cash flow positive.
Differentiate Business Expenses from Personal Expenses
You should know just how to differentiate between expenses for your business and for your personal needs. If an expense is undertaken for business purposes, then you should treat it as one and not take money out from your personal bank account. Similarly, personal expenses should be differentiated. Going out with your sales team for food on a sales visit is a business expense, while doing the same with them on a weekend night is a personal expense. Know the difference.