Whether you’re just starting out and not yet profiting, or a well-established business, keeping your personal finances and business affairs separated is no easy feat. However, the two just don’t mix well and it’s absolutely important that you don’t associate them the same. So to make it easier to manage these different financial matters and reduce any risks or confusion, practice the following steps…
Make your business official. Authenticate and legalize your business by establishing it as an LLC, S Corp, or C Corp. Of course, you should always seek out the assistance and guidance of a legal expert to make sure you apply for the proper structure for your business. Establishing your company will ensure that it is protected from lawsuits, losses and debts that will obviously jeopardize your financial situation on the business end and likely your personal account as well.
Establish credit. Apply for business debit or credit cards to prevent yourself from using a personal account for any transactions. This will also encourage you to have stronger business credit which will eventually lead to the access of loans and other perks.
Open a checking account for your business. It’s always wise to have two separate accounts for your personal and business finances. This will likewise keep your personal and business bank statements separate which you’ll find extremely convenient especially when you must refer to them.
Pay yourself fairly. Don’t hesitate to pay yourself. Each week or month, write yourself a check just as you would for employees. Make sure it is transferred over to your personal account right away.
Keep all your receipts separated and organized. Use folders and a strategic filing system to separate your expenses. If the IRS ever bothers you about anything, you’ll have all the proof you need in one central spot. It’s vital to your business’s success that you keep a clean financial record.
Track all shared expenses. It isn’t a secret that a majority of your business expenses are tax-deductible. There’s a lot that you can write off including office supplies, coffee with a co-worker, and even any flights taken and lodging booked for business endeavors. Want to lunch with a few selected employees to talk about their promotions? Well, those can be written off too as long as you keep the proof.
Pay mind to the personal items you use for business reasons. A tax advisor should really be hired to assist you with this but you must keep track of all personal things that are also used to grow the business. This goes for your vehicle, phone, and anything else that is shared for both personal and business purposes because these too can be written off come tax season.
Employees must also be well-aware of the difference between personal and business expenses. It is much easier to stand by your own desire to keep the separation between the two accounts when everyone else is on board too.
Save time and money by applying the above tips to your own life and financial situations. Even if you miss a few of these steps, you will notice a great difference. Drive your business to success by staying mindful of your finances and the necessary separation between them.
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