When you are running a business, your personal finances can easily get tangled with business finances. And this can cause trouble when it comes to calculating profit at the end of the month. That’s why keeping personal finances separate from business is a good idea to never use personal money for business or business money for personal expenses.
This article will show how you can separate personal and business finances using the following tips and tricks.
Register your Business
Establishing a legal identity for your business by registering it with local authorities is one of the important things you can do to separate personal finances from business. This will also help you get an EIN and TIN that can be used to open a business account and avail other business advantages. Registering your business with the local government also protects your personal assets from business losses and debts. So, pick the right structure for your business like LLC, and put your business officially on the map.
Get a Business Credit Card
Getting a business credit card is another best way to stop using a personal card for business payments or purchases. This helps you draw boundaries between business and personal expenses. Business credit cards also come with spending limitations so you can limit the business money your employees can use. You can also get access to some account management tools by getting the best credit card for your business. Furthermore, credit cards also help you save the business money in many ways like cashback, free reward points, travel benefits, and no foreign transaction fee, etc. So, choose a right card with appropriate benefits aligned with your individual business needs.
Set and Pay Monthly Salary to Yourself
Using business money for personal expenses not only disrupts cash flow but can also cause abnormal business loss. This is the reason, instead of using business dollars for personal needs, pay yourself a salary and then use that money for personal purchases and payments. Transfer your salary into a personal account and then use it as needed. Once you are out of money at the end of the month, wait for your next salary transfer date or use your personal credit card to finance daily necessities. Never ever use your business card or account to make personal payments.
Separate and Organize your Personal & Business Receipts
Keeping your personal and business receipts separate demonstrates your commitment to keeping personal and business finances separate. You can make use of traditional folders for this purpose or use a digital solution to store them in your smartphone or on the cloud. This keeps you prepared well for the tax filing process.
Track When You Use Personal Finances for Business Purposes
You may need some extra money to finance business purchases or expenses with the intention to grow your operations. This is where you can use personal savings to meet the financial needs of your business without borrowing money from a bank or someone else. However, you should keep proper track of personal money used for business and take it as a loan as you get from others. When you do so, make a repayment plan and decide when you will pay back that money to yourself. In this way, you can avoid paying high-interest rates on business or personal loans while fulfilling business needs using personal funds. Hence, keeping a proper record is important.
Draw Lines Between your Home and Office
Creating a division between your office and home is important to keep office expenses separate from personal. If you work from a home office, divide your bills and other utility charges to never have a toll on your personal finances. Whenever you use some office essentials using a personal credit card, note it down and get a reimbursement as soon as possible.
Educate your Employees
Alone you can do nothing. If you are keeping business and personal finances separate but your employees don’t, it is useless. Make sure to educate your employees to keep business and personal payments separate by organizing each paystub, payment receipts and other transaction proofs. You can also authorize them to use a business credit card for business transactions or assign a particular sum of money every month to pay for business-related things.
Conclusion
Keeping personal and business finances separate is important to see how your business is progressing towards chosen business goals. This also keeps you from using personal finances for business-related purchases or payments so you can stick to the monthly budget effectively. So many fintech tools and solutions are also available these days that you can use for this purpose.
