It is very easy to mix personal finances up with business finances. The need to separate personal finances from business is important, especially when starting a new business. It plays a significant role in how you run and manage business operations and how the industry perceives them. No matter what type and nature of business you are running, it is always advisable to keep personal money separate from your business.
To help you get started effectively, we have listed some tricks to separate business and personal finances below in this blog post.
Create a Budget Plan for your Business
Many business owners find themselves pulling business money out for personal expenses. They also pull personal money into the business when there is a shortfall of funds to meet the financial needs of the business. This is the worst thing that can ruin your business or have a bad impact on your personal finances. This is where creating realistic business budget plans comes into handy. It provides a clear picture of the incomes and expenses you need to make every month. As a result, you are better able to manage business money for overheads even without using personal funds.
Pay yourself a Salary
Paying yourself a salary is one of the best ways to keep personal and business finances separate. It allows you to manage all your personal costs and payments without using a business account or credit card. Giving yourself a paycheck every month not only makes your business successful but also helps you stay on a personal budget. So, make sure to write a check to your personal account to stay on personal finances while keeping them separate from business.
Get a Business Credit Card
A business credit card not only helps you build good business credit but also keeps your business expenses separate from personal ones. Since business credit cards come with several perks and benefits like interest free credit card, balance transfer, cashback, free rewards and sign-up bonuses etc. they can help you save a lot of business bucks while meeting financial needs of the business. You can also apply for authorized business credit cards for your employees with spending limits to keep track of employee spending. Furthermore, a credit card also helps you keep proper track of business payments and expenses as you can get a statement at the end of the month.
Identify When You’re Using Personal Funds for Business Purposes
If you are short on business money and there is a need to make some important payments like utility bills, use of personal funds makes sense. However, you should identify and remember whenever you use personal funds for business use. Ability to track and identify the personal funds used for business purposes helps you a lot in the taxation process. That’s why; you should also educate your staff to highlight if some of the business overheads are paid using personal resources.
Get Everyone on the Same Page
Finally, you have decided to separate personal and business finances in a professional manner. Educating your staff and business partners should also be your major concern to encourage them to differentiate business expenses from personal. Let them know what techniques you are about to use and what they should be doing on their own to make this happen.
Pulling out business money and not paying back is one of the common reasons most startups fail. That’s why, experts always suggest separating personal finances from business finances not only to determine how much profit your business is generating but to make the tax filing process easier as well. It keeps your business operations running smoothly while reducing potential risk to your personal assets at the same time.