For various reasons, many people choose to keep their personal and business finances separate. Perhaps you want to avoid commingling funds, or you simply want to maintain a clear distinction between the two spheres of your life. Whatever your motivations, there are several practical ways to keep your personal and business finances separate.
1. Get a business bank account.
This is one of the simplest and most effective ways to keep your personal and business finances separate. Having a dedicated account for your business can help you track expenses and income more easily, and you’ll always know exactly how much money your business has on hand.
For example, a separate business account can help you keep track of rental income and expenses if you run a rental home business. This can help you if you need to file taxes or apply for a business loan. You can also use the business account to manage any housing loans on the rental property. If you commingle the funds, it can make tracking much more difficult.
2. Use separate credit cards.
If you use a personal credit card for business expenses, it can be hard to track what is a business expense and personal costs. This can lead to confusion and make it difficult to manage your finances. It can also make it harder to get a business loan if you need one because the lender will want to see a clear separation between your personal and business finances.
By using a separate credit card for business expenses, you can more easily track your spending and stay organized. You can also get a business credit card with rewards, which can be helpful if you travel for work or have other business-related expenses. You can even get a business credit card with 0% APR for a certain time, which can be helpful if you need to make a large purchase for your business.
3. Have a dedicated business budget.
Another way to keep your personal and business finances separate is to have a dedicated budget for your business. This can help you track your money and ensure you are not overspending. It can also help you make intelligent financial decisions for your business.
Having a budget can also be helpful if you ever need to apply for a business loan. The lender will want to see that you clearly understand your business finances and that you are not spending more than you can afford. Start by tracking your income and expenses for a month to get an idea of where your money is going. Then, create a budget that outlines how much you can spend in each category. Be sure to review your budget regularly and make adjustments as needed.
4. Use accounting software.
When you have a separate business bank account and credit card, it can be helpful to use accounting software to track your finances. This can help you stay organized, especially if you have a lot of expenses. It can also help you prepare for tax time. Some accounting software can even help you create a budget for your business.
There are many different accounting software programs available, so be sure to research the one that is right for your business. Some programs are designed for small businesses, while others are more comprehensive and can be used by companies of all sizes.
5. Hire a professional accountant.
If you have a complex business, hiring a professional accountant to help you manage your finances may be helpful. This can be a good option if you are not comfortable managing your finances on your own or don’t have the time to do it. An accountant can help you monitor your income and expenses, prepare for tax time, and make sure that you are making sound financial decisions for your business.
When hiring an accountant, ask about their experience working with businesses like yours. It would be best if you also asked about their fees and how they prefer to be paid. Once you find an accountant you trust, keep communication open so that you can ask questions and get advice when needed.
Keeping your personal and business finances separate can be challenging, but it is important if you want to keep your finances organized. Using a separate bank account and credit card for your business, having a dedicated budget, and using accounting software, you can more easily track your spending and make sound financial decisions for your business. You may also consider hiring a professional accountant to help you manage your finances.
You can successfully keep your personal and business finances separate with a little effort. This will help you stay organized and make smart financial decisions for your business.