It’s often difficult for small business owners to separate their personal and business accounts. There are many perfectly understandable reasons to have mixed the two. In fact, it happens all the time. Many small business owners use their own capital to open their business, commingling their finances right off the bat. Oftentimes business owners are their own strongest employee, but don’t see a paycheck for months or longer. It’s almost too easy to get mired in the mixing of finances. Whether you’re starting a business and want to avoid pitfalls, or you’re a business owner seeking help, you need to separate your accounts. Here are 7 ways to separate personal and business finances:
1: Establish Separate Accounts
At the risk of sounding too simple, the best way to keep your finances separate is to separate them. In a perfect world you would use each account only for its intended purpose. In this situation you can reference your statements to see where your money is. Even if you’re unable to separate your spending completely, establishing separate accounts will help get you on the right track.
2: Give Yourself a Paycheck
Even if you maintain separate accounts, if you’re always pulling from the till for groceries you aren’t separating your finances. It can be difficult for small business owners to establish salaries or pay schedules for themselves. After all, launching a business involves a lot of risk, overtime, and sacrifice. As soon as you are able, establishing a salary will help you budget both your personal and business expenses. A firm understanding of your income and expenses will help you and your business grow.
3: Separate Your Expenses
Small business owners are expected to have expenses. Maintaining a separation between personal and professional expenses will help you budget at home and at work. Do you make more personal or professional calls? Are you driving for work or for fun? Track the usage of your equipment and see which category the bill belongs to. A reasonable attitude toward what the business should pay for will help keep the business on track, and help maintain a realistic budget.
4: Set a Realistic Budget
Your business is more likely to grow if its built on a solid foundation. A realistic budget will help you determine the best ways to use your income for growth. If your business is only making a small amount of revenue, you can only contribute so much of your personal capital before something must give. It is important everyone involved with the business gain a clear understanding of your account separation. The appropriate budgeting of funds will help maintain accurate financial record keeping. A business budget tailored using your own income and expenses will go far in providing a clear separation of finances.
5: Keep Your Receipts
Even with everything done online, printed receipts are still an important part of business account management. Receipts help you track expenses, may help gain various tax deductions, and will help to maintain tax compliance. Keeping your receipts may help you get various write-offs, and avoid tax troubles in case of audit. This will also help you understand where exactly your money is going, helping you make better decisions. A binder, box, or flex-folder are all excellent tools for storing and cataloging your receipts.
6: Track Your Accounts
Knowing what is coming in and what is going out of your account is crucial for banking management. You can use your own spreadsheets or software, and many easy-to-use solutions exist online. If you are making taxable revenue, the government is going to want to see a record of your income. You aren’t required to keep a record of your business expenses but you should consider it. This will help you maintain a broader understanding of your business finances.
7: Speak to a Professional
You started a business doing what you do best. No one expects you to have all the answers when it comes to running a small business. Owning a business requires financial knowledge and planning. A professional wealth advisor can help you understand how to help your business grow.
Take your business to the next level. Contact Overland & Shanahan Wealth Advisors today and ask about our Small Business Owner Services. We can help arrange employee benefits, compensation, retirement services and more. Get back to doing what you love to do. Call us today at 858-792-7027 to see how we can help you and your business grow!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.