Blurring the lines between business and leisure is never a good idea. When you start a business it is important to separate your personal and business finances as it will play a significant role in how your business operates, and how it’s perceived by the corporate world. Differentiating between personal and business finances provide an array of benefits with the most important being tax advantages and the ability to protect your personal assets.
Keeping Your Business’s Finances Separate
For new business owners, it is crucial to remember that your business is an independent entity; it’s free-standing from you and your personal finances. Why it may be obvious, let’s go through why you it is important to separate your finances.
Protect Your Professional Image
Separating your personal and business finances comes down to how you are perceived as a business owner. Your business is more than a hobby, and your finances should be treated as such. Having a separate account(s) for your business makes you look like a more serious business owner, and will help establish your business’s identity. At the end of the day, you want people to take you and your business seriously. Having them write a check to you personally, rather than the business, will come off as amateur.
The ability to take advantage of tax deductions, such as writing off business expenses, is a huge reason many business owners separate their personal and business finances. It is vital to keep accurate records and bookkeeping of both your personal and business expenses. Hiring an experience bookkeeper and account will help save time and a significant amount of stress. Keeping records and good books of expenditures can also assist in the event of an IRS audit. If your finances are not separated, this will likely result in the IRS auditing not only your business and but your personal records as well.
In order to grow your business, you must obtain working capital, and business credit will be needed to secure business loans. Blending your personal and business income makes it difficult to provide your business income to banking agencies, which will make it more difficult to establish your business credit.
Save Time And Money
One of the most important reasons to separate your personal and business account is it will save you time and money. Hiring a bookkeeper and a CPA will come with a cost, but having complete separation of finances will result into less billable hours, helping to save you a large amount of cash in the process.
Get help from a professional bookkeeper, account, or CPA help on how to best separate your personal finances from your business finances.