If you are a business owner, you must separate your personal finances from your company finances. If not, you may be setting yourself up for inconveniences and legal trouble.
For starters, any time there is an audit by the IRS, and they find discrepancies in the accounting records of a business and its owners, they will penalize both the individual and their company.
Moreover, you track your business growth better when you know about your finances, so all the more reasons to separate these two account types. This blog post will talk about 10 tips to help you separate your personal and company finances. Take a look.
Understanding the Difference Between Business and Personal Expenses
Personal expenses are not related to the company and include items like rent, groceries, and utilities. Business expenses are a part of your professional income like office supplies, advertising costs, and employee salaries.
Useful Tips For Separating Your Personal and Business Finances
Open a Business Checking Account
With a business checking account, all transactions and money that come in and out of the company will be tracked separately from your personal finances. This makes it easier to keep track of your business’s financial status and helps with bookkeeping. Consider a community bank for the same.
Have a Separate Business Credit Card
A business credit card can help you track your company’s expenses separately from your personal expenses. This is also a good way to build up your company’s credit history.
Create Separate Business and Personal Bank Accounts
If you do a lot of transactions between your personal and business bank accounts, it can be tough to keep track of everything. Create separate bank accounts for your personal and business finances to avoid this. This will help you stay informed of your transactions.
Use a Separate Email Address for Your Business
All correspondence and transactions related to the company will be sent to your business email address if you have set up one. This makes it easier to keep track of your company’s communication. Similarly, you can ensure that you don’t miss out on your personal emails with a separate personal email address.
Have Separate Business and Personal Files
This will make it easier to find what you need and when you need it. It will also help in better organization. This would translate to better business growth and help you make better financial decisions.
Use Separate Tax ID Numbers
If you have a sole proprietorship, you will need to use your Social Security number as your tax ID number. However, if you own an LLC or corporation, you will need to apply for a separate tax ID number from the IRS. This will help keep your company and personal finances separate for tax purposes.
Keep Track of Business Income and Expenses
Keeping records of your business expenses like buying new furniture and paying employees will help you stay on top of your company’s financial status and make better financial decisions in the future.
Insure Your Business Assets
You would never ignore life and health insurance, so why sideline your business assets? Doing so will help you protect your company in case of any unforeseen accidents or thefts like office fires and earthquakes.
Consult a Financial Advisor
If you think managing your personal and business finances might not be your cup of tea, It’s always a good idea to consult with a financial advisor. They can help you set up a plan to separate your finances and give you advice on managing your business finances better.
By keeping your finances organized, you can make better financial decisions for your company and avoid any confusion in the future. We’re sure the above tips were helpful.