If there is one thing any entrepreneur should do immediately upon starting up their business is be sure to keep business finances and personal finances separate.
Below are five reasons why you should keep business and personal finances separate:
1) Ease. It just makes life easier for EVERYONE. Keep it Clean. Yes, it may be a little more work on the front end – such as setting up extra accounts, doing two separate checkouts at a store (one for personal items and the other for business items), and tracking receipts for business expenses. But it will make your bookkeeper, accountant, and you much less stressed when it comes time for taxes or possible tax audits. This will also save you time and money and you won’t be paying extra for your bookkeeper or accountant to search around for certain transactions.
2) Taxes. You could be missing out on particular tax deductions for both your personal taxes and your business taxes if you are commingling everything. If you can not determine the correct income & expenses for you vs your business, the IRS certainly will not know.
3) Loans. To achieve financing for you personally (a mortgage) or your business (a business loan) both mortgage lenders and business loans want to see your financial history and will have lots of questions regarding the data. If you can not demonstrate the ability to properly organize your finances they may question your ability to manage any financial loan.
4) Credibility. You want to establish business credibility. If you are using personal accounts and checkbooks, your professional image could quickly dwindle. People may question if you are a legitimate company or if this is just a little side gig when they see your name and home addresses on a personal check.
5) Accuracy. It is very difficult to obtain an accurate financial report such as a profit & loss statement, cash flow or balance sheet statement if your business & personal finances are all on the same account. If you have inaccurate business reports you will make inaccurate business decisions.
Just the simple task of setting up a separate bank account and credit card will make your life so much easier.
KPI Bookkeeping and Consulting help small businesses keep everything separate. If we spot an “out of the ordinary” or personal expense we will make sure it gets allocated to the correct account so you can be the established, non-stressed, accurate financial report, full of tax deduction kind business that you achieve to be.
