Establishing a clear division between your business and personal finances reduces your personal liability, enhances your professionalism, simplifies accounting and tax preparation, and protects you and your business. Following are tips for creating a clear boundary between your company’s fiscal matters and your personal income and expenses.
Establish a legal structure for your business: The legal structure you chose for your company dictates your personal risk and liability and how the company pays taxes. Discuss your options with your CPA.
Create a business bank account: All transactions, cash receipts and disbursements for your company should be handled through a separate business account.
Acquire a business credit card: A business credit card keeps your personal and business finances distinct and helps build a strong business credit score boosting your borrowing power and helping you qualify for business loans.
Track shared expenses carefully: If you use personal items (car, cell phone, etc.) for business purposes, use an app on your phone to keep an accurate log of your business use.
Set a business budget: Preparing and sticking to a budget reduces the possibility of needing personal finances to rescue your company.
Consider a loan to your business: If it becomes necessary to inject personal money into your business, make a loan to your company so that the corporation pays the expenses.
Pay yourself a salary: To make the exchange of money from your business to your personal account clear, write yourself a monthly check as a salary for services provided.
Educate your employees/partners regarding the difference between a personal and a business expense.
Rent your location: If you are using a portion of your home for your business, create paperwork for a rental agreement and rent the space to your company.
Keep your accountant informed and involved: Involve your CPA in decisions regarding the bookkeeping system you choose, personal loans to the business, preparing tax information and tax payments. A CPA will assure accuracy of tax claims, save you time and money and assist you in keeping business and personal finances separate.
Need help maintaining separation between personal and business finances? The accounting team at Cook and Company Accountants is eager to help you and your business. We provide the knowledge and resources your company needs. Contact us for a complimentary consultation.
References:
- https://learn.marsdd.com/article/keep-business-personal-finances-separate-avoid-common-accounting-mistakes/
- https://quickbooks.intuit.com/r/financial-management/the-importance-of-keeping-business-and-personal-finances-separate/
- https://squareup.com/us/en/townsquare/8-easy-ways-to-separate-your-personal-and-business-finances
- https://www.fortunebuilders.com/separating-personal-business-finances/
- https://www.americanexpress.com/en-us/business/trends-and-insights/articles/10-tricks-to-keeping-personal-and-business-finances-separate-1/
- https://www.thebalancesmb.com/how-do-i-keep-personal-and-business-funds-separate-397491
