Business vs. Personal Finances: Keeping Things Separate

How is your business performing? Are you making a profit?

For many business owners, the answer is: “I’m not sure…”

When you set up a new business or start to work for yourself, you need to establish some business accounting records, and can keep your business and personal finances separate. If you combine the two, things will get complicated, especially when it comes to filing your personal tax return and corporate tax filing. Avoid problems with your personal finances by using the tips explained below.

 

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Why Hire An Accountant?

When you establish your business, hire an accountant, such as https://bacallconniff.com/ if you don’t already have one. Accountants assist you with both your personal and professional finances, and serve as an extra set of eyes on your records.

They will let you know if you classify a personal expense as a business one, or the other way around. Accountants have reliable methods for keeping your personal and business finances separate- here are two of those methods:

• Chart of accounts: An accountant will help you set up a chart of accounts for your business, which is a list of each account you need and an account number. For example, you may have account #1000 for cash and #4000 for accounts payable. Accounting software packages allow your accountant to quickly set up your account list. Since every business transaction must be assigned to an account, personal transactions can be avoided.

 

• Bank reconciliation: You should maintain a separate business bank account, and your accountant can either perform your bank reconciliation, or review your work. A quick review of the bank account activity can identify personal transactions that should be removed.

The cost of an accountant will pay off, because your CPA can help you keep business and personal transactions separated.

Should You Have One Credit Card?

 

You should have separate business and personal credit cards, just as you have separate checking accounts.

If you already have a credit card for personal use, you should take a look at https://best.creditcard/ and find one that you can use with your business account. This then gives you the chance to start building up a credit history for your business. It’s important that you have different credit ratings for yourself and the business, so that one credit rating doesn’t impact the other.

Smart choices regarding your business credit rating increase your chances of being accepted for business loans.

Dealing With A Salary

 

As a business owner, you will have the chance to pay yourself a salary from the business account. This will be paid straight into your personal account on the same date each month.

Once you know that there is regular money coming into your personal account each month, you won’t be as likely to dip into your business money to make a purchase. This will help your business and personal finances stay well within budget.

Keep Receipts Separate

Whenever you have any expenses, whether business or personal, it is always necessary to hold onto the receipts, and you need to keep a file of business expenses to support the information on your tax return. Store your personal and business receipts in two different boxes, or as files on the cloud.

Make The Process Easy

As you can see, it isn’t too difficult to keep these two sets of finances separate, so use these tips to keep your records in order. If you ever end up mixing the two, though, it’s worth reaching out to your accountant for help and advice.

This post is for educational purposes only.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

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