Tips on Separating Your Personal and Business Finances

Toothpaste and orange juice. Peanut butter and ketchup. Elephants and mice. Some things simply do not go together, and the same is true for your business and personal finances. It is best that you adopt and learn strategies that keep these things separate, as it will save you headaches down the road and make it a lot easier to manage your monies. 

If you are a new entrepreneur you may find it a challenge to put a diving wall between your personal and business finances. You can get easily confused on how to keep track of things especially when you are running the business on your own. 

Fortunately, there is a wealth of advice you can follow to get you out of this sticky situation. We spoke with the experts from Crunch and they gave us some ideas about how to get started, have a look at their five best tips. 

1. Open A Business Credit Card

This will enable you to stop using your personal credit cards for business-oriented transactions, and this is an easy way to separate personal and business expenses. Your personal credit can remain protected-after all, if you’ve got a high score, keep that protected. Business transactions will not usually appear on your personal credit reports unless you end up defaulting and maxing out personal cards can make your score drop by as much as 100 points. As the song goes, “Gotta keep ‘em separated.”

A business credit card will also help you build up a stronger business credit score. Just remember to pay your bills on time. This in turn will boost your borrowing power, help you qualify for small business loans with lowered interest rates, and help you cement your position as a real entrepreneur. 

2. Keep Track of Your Personal Item Use for Business Purposes

In a perfect world, we would all have a company car or even a private jet to get around in. But the bulk of us are driving the same car we always use, whether it’s for our daily coffee run or traveling a few hours to get to the trade show or marketing convention we can’t wait to attend. This also applies to your cell phone-many of us find it easier to just take personal and business calls all on one phone. 

Think of any and all items you use regularly for business AND personal use and be sure to track their use. Any use that you can legally write off should be so that you can save some money when it is tax season. Be sure to talk to a tax advisor about how to keep track of your records in the best way possible. 

3. Be True to Your Salary

As your own boss, you are in charge of paying yourself. So, you should do it like you always knew before you started your business venture: Paying yourself a salary and sticking to it. Write yourself a check each month and transfer these funds from your business account over to your personal account. Then, act like you just got your paycheck from a traditional job. 

Pay your bills as you would, take care of food and gas expenses, go out for fun, and then stretch that money until the next payday. Keep your hands off the business checking account, and you will be much happier and have less to explain and remember when taxes come due. 

4.Use A Receipt Organizing System

You can use shoeboxes, Eisenhower boxes, those accordion folders, or even an old Trapper Keeper from the 90’s. Just find yourself a way to keep those receipts for business use accounted for. Create two physically separate locations-in one spot is where the business receipts go, and the other is where the personal receipts go. 

When it comes to taxes and owning a business, tax auditors really don’t care so much about your personal expenses as they do your business receipts. Keep an eagle eye on these things all year long and take those few extra moments to organize them upon buying something for your business. 

5. Get Everybody on the Same Page

You are likely not going to be the only person involved in your personal finances or your business’ finances. Spouses, partners and employees all play a role, too. Be sure that each of these people know what qualifies as a business expense so that there are no moments of confusion or needless spending down the road. 

Furthermore, keep finances for entertainment, dining out, and travel separate. The idea of writing off all you can as a business expense is good on paper, but meals out or flights with friends or family will just not qualify.

Conclusion

It is so easy to let your business expenses get tied up into your personal expenses, and vice versa. But you should absolutely do your best to keep these things separate, as it will be much easier to sort out come tax time, and easier when you seek to grow your business or sell it. Start utilizing these tips and ideas today for an easier tomorrow.