How To Keep Your Business and Personal Finances Separate
Entrepreneurs must keep their personal and business finances apart. Mixing them can have catastrophic consequences. Besides muddying financial forecasts, it creates a mess during tax time. Here are a few guidelines that every businessperson should follow to avoid corporate chaos.
Create Separate Accounts
Most important is that you keep personal activity distinct from business transactions. It can be impossible to untangle past actions when all purchases happen on the same account. For this reason, you should open a business checking account in addition to your private one.
Banks sometimes impose requirements for starting business accounts. There may be a rule that you deposit a minimum amount each month or maintain a certain balance. Failure to meet these standards could trigger a maintenance fee. If you determine that a business checking account is not possible or the terms are undesirable, create another personal one for this purpose.
Get a Business Credit Card
You certainly want to consider this step if you constantly make company-related charges. By using two different cards for business and non-business purchases, you’ll automatically generate a record of activity that makes tracking operational expenses a snap.
You already know how important it is to build your credit score and that using credit cards helps to do this. The same principle applies to business credit cards. By building a business credit score, you’ll have a venture-focused source of credit available when buying equipment, paying salaries, or expanding into other territories.
Entrepreneurs sometimes get so lost in the whirlwind of building a startup that they forget about personal expenses. Avoid this by treating yourself like any other employee. Provide yourself a set wage so that you never take unwise sums of money away from your business to handle living expenses. You can easily make this happen if your company is an S-Corporation. Consider switching over to one if you run an LLC or Sole Proprietorship.
Establish Automatic Payments
Let automation take away the danger of human error by automatically paying bills. Setting up automatic payments assures that business expenses come from the desired account. It also removes the temptation to mix personal monies with business funds.
Even with all this, it’s worth keeping separate budgets. It makes identifying whether anything’s wrong much easier and planning for the future far less stressful.
Maintaining proper business finances is essential for every corporation. Set yourself on the road to success by following these time-tested recommendations.