Running your own business presents you with complex challenges on a daily basis. Unfortunately, if you fail to keep your personal and business finances separate, you could be facing an incredibly complex problem come tax time. One of the easiest ways to combat this problem is by separating your finances early on and maintaining impeccable records.
When you first begin to build your business, much of your financial resources could be coming out of your own pocket. Fortunately, after you have begun to grow, it should be much easier to separate the finances and keep adequate independent records. Included here are a few tips for maintaining the personal and business finance balance and keeping them separate.
Create a Business Checking Account
Perhaps one of the easiest ways to begin your separate record keeping is by creating a business checking account. According to Columbia Bank, having separate debit cards and checking records kept for your personal and business finances will avoid bleed-over at the end of the year. When you file your taxes, you can simply reference the different checking accounts to keep a record of spending, instead of having to sift through them to differentiate the two.
Store Receipts Separately
While you may think it is easier to just throw all receipts into one folder now, you will be cursing yourself come tax time. An auditor may not hold much interest in your personal receipts and financial records, but they will be very involved with the business side. For this reason, it is wisest to keep your receipts in totally separate physical locations, and be sure your record keeping is timely and without mistakes.
Open a Business Credit Card
As a new business owner, you face a lot of purchasing decisions, and may be tempted to purchase things slightly outside of your budget that could better your business. In order to avoid overstretching yourself, keep your personal credit card out of the mix. By opening a business credit card, you can have an extra resource line to utilize in tough times or when it is time to expand, without throwing your individual finances under the bus.
When you create a business, you feel that you are solely responsible for the profit it earns. One problem with this ownership mindset is that you feel all profits should contribute to your paycheck; this is a bad idea for many reasons. If you fail to put money back into the business, you will have no savings line that allows you to upgrade or grow as a company.
Additionally, if you never build up an emergency savings within the business, you will be unable to weather lean financial times or recover from equipment breakdown or employee losses. Decide how much money you really need to live on and pay yourself like any other employee. By planning out your salary, you can ensure the company will grow stronger and your personal finances will be stable.
Build a Budget
As any financially responsible adult will tell you, budgets are everything when it comes to getting your ducks in a row. Knowing exactly how much money is coming in and going out each month can help you stay on track and never overdraw your accounts. Build a budget not only for the business’ expenses but also for your personal expenses to the business. While there may be times where it is necessary for you to draw on your personal funds for a business shortage, you must set the cutoff to protect yourself from financial ruin.
Always keep yourself afloat independently of the business. Additionally, building a budget may allow you to see where you have an overflow of money for bigger investments or company growth. Budgets don’t necessarily have to be a bad thing!
Split Your Resources
Always keep track of which resources are being used for your business and which ones are for personal use. For example, when you utilize a home office, put it in a separate space from your personal living areas. Doing so will allow you to claim a tax deduction for your power, internet, and even phone usage in that area! Keep in mind, your cell phone and internet bills can have a portion attributed to business expense as well.