Why It’s Essential to Keep Personal and Business Finances Separate
If you’ve been thinking about starting your own business and you’ve been doing a bit of researching on what all of that entails, then you’ve probably read, a couple of times, that you should be absolutely sure that you keep your books straight—that it’s absolutely essential that you make a concerted effort to keep your personal and business finances totally separate.
Although, even on the surface, that probably makes sense, there may still be a part of you that wants to know the “deeper purpose” into why that is such a vital tip. We can provide you with five reasons why you should make sure to follow that wise advice. Check these out below:
It makes tax season much less stressful. When you have your own company, there are a lot of business expenses that you can write off; however, you can only do so if you can prove that what you spent certain monies on was solely for business purposes only. It’s a lot easier to do that when the receipts (and credit cards and bank accounts) are separate.
It helps you to understand your profits better. There is not one business owner who is not out to make money, and more specifically, more money than they put into the company. In other words, a profit. When you don’t have your personal finances separated from your professional ones, it can be hard to tell how much money that you are actually making (and spending) as it relates to your company.
It’s an easier way to budget. You don’t need an online masters in taxation to know that if you want to have peace of mind, both in your personal and your professional life, you definitely need to have a budget. However, when you don’t have your personal and business accounts separated, it can be hard to tell (for instance) what money is for your mortgage on your home vs. the lease for your office. In order to make sure that you’re not overspending (or misspending), you need to make sure that those monies do not merge.
It helps you to keep better records. When your bank statements and credit card accounts are totally separate, this also makes things easier for your accountant when it comes to monitoring business expenses. For instance, if you didn’t have separate accounts and you paid for a work conference and your child’s summer camp out of the same “pot”, when it comes time to balance your books, it could be hard to tell what can be a legitimate expense and what is simply for personal use. If you want to avoid a potential audit, do yourself a favor and keep the books separate.
It gives you peace of mind. A person who runs their own business tends to have a hard time “getting off of the clock”. Therefore, you can only imagine how much “overtime” would be put in without keeping the finances separate. You don’t want to be out on a date with your spouse or at the movies with your children and worrying about if you should have put that money towards your office supplies. Separate accounts are not just about applying good business sense, but peace of mind as well.
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