4 Ways to Separate Business and Personal Finances
In the setup days of your business, how you manage your finances is crucial for the success of the business. What’s more, mixing personal and corporate expenses can also rob your business of the trust an investor needs to keep your business afloat. On that note, here are four ways to separate business and personal finance.
1. Have a separate account number for your business.
Keeping money meant for business out of your wallet can be the simplest option for business owners to separate personal and business expenses. If you already have an account with a brick-and-mortar bank, you can consider opening a business bank account. This way, you can avoid discrepancies when managing your business. If you’re not sure which type of account to open, seek financial advisory services from your bank of choice. They’ll likely offer the option of a business checking account or a savings account. They both have different balance requirements and online banking options.
You can choose to opt for a bank that solely operates online. Note that the perk of choosing online bank accounts relates more to convenience. The best online banking accounts tend to have lower banks charge, and fewer fees in their terms and conditions. Your corporate account will likely come with a business credit card. Credit cardholders can pay bills, make cash deposits, and facilitate other corporate transactions. A business credit card is also a good option if you want to build your credit score.
2. Incorporate your business.
The placement of companies into specific business entity types follows a strict set of rules. Partnerships and LLCs require business owners to have different tax, risk, and income distribution arrangements than sole proprietorships. Adding “inc.” to your business name can be a great way to separate your business from personal finance.
Corporations have more trading options than sole proprietors. But it also comes with extra reporting responsibilities and transparency requirements with financial and bank services. So it pays to download POS software to help track inventory and generate sales reports in real-time. You can either opt for free POS software or a customized POS system.
Some POS devices may have new features like a cash register, barcode scanner, and receipt maker to make invoice and inventory management more manageable. But software takes the entire process to the cloud affording businesses a seamless approach to record sales and leverage the numbers for other business growth functions.
Installing a Point of Sale software doesn’t only help you to draw the line between personal and business finances on your incorporating journey. An efficient POS system can help businesses accommodate increased volumes in sales orders as the business grows. The sales analytics feature of many POS systems arm business owners with the essential numbers to influence everyday purchases and behaviors.
3. Understand the difference between personal and business expenses.
Business owners need to understand the differences between personal and business expenses. That alone can be enough basis to draw the line between the two. Consider this scenario. Supposing you supply goods to grocery stores. If your retailer friend runs low on supplies and you had to give some of your groceries to sell. You may be tempted to classify that as personal lending with no charges on the items provided to your friend’s retail store.
Another business owner can tick that same transaction with a vendor and treat it as a financial transaction. They might even add interest at a respectable rate. That same transaction can bring different benefits to different owners based on their understanding. Having a robust bookkeeping strategy can be a great way to separate finances.
4. Put yourself on a fixed salary.
Many sole proprietors make the mistake of cutting back on structured personal benefits from their business. Paying yourself a little bit of money every month is better than dipping your hands in business finances as and when. Paying yourself a fixed salary as employee number one can create a boundary between the business and personal finance.
