Getting your business up and running is one of the most exciting moments, but with the anticipation comes responsibility. For small businesses in particular, managing finances can be challenging. This is especially true when you're trying to handle your personal finances at the same time. It's easy to get the two mixed, but if some funds for your business go unaccounted for, you could wind up in a serious financial problem.
As a small business owner, you have to keep your personal and business finances separate so you can track cash flow, your daily or monthly profits and make more precise tax reports, which will help you greatly during tax season. Here are five habits to help keep your personal and business finances separate:
1. Build credit for your business
With your own personal finances, you know the importance of good credit and why it's essential to help you make major purchases. The exact same logic applies to your business's credit line as well. With your small business, you need to establish a line of credit that will help build your company's credit score without severely affecting your own personal score.
Additionally, you will want to create a different line of credit for your business that is completely separate from your personal credit to fully comply with the IRS and the court system. Separating each line of credit helps you show the government that you are an operational business, instead of a practicing hobbyist. You will be able to deduct more operational expenses on your taxes by showing the IRS you are a fully functioning business.
2. Keep expenses receipts separated
A big mistake small businesses tend to make is not keeping their business expenses separate from their own personal checking account. When you start your small business, you should plan a budget for both personal and business finances. You never want to borrow from one checking account for another, or interchange your funds at all.
When your expenses are clearly for either personal or business purposes, you can track spending, profits and expenses more clearly without getting the two accounts mixed up. Additionally, you should track your receipts in the same fashion. If you start mixing up your receipts, it could be a nightmare come tax time. It's always important to keep from spending money on items for your business with your personal checking account. When you try to deduct these expenses on your taxes, you could end up being audited.
3. Manage your finances through the cloud
You might hear about major businesses using the cloud to streamline their operations and run more efficiently. As a small business owner you can use this same technology to make your recordkeeping and finances organized. Using Microsoft Excel is certainly helpful with financial recordkeeping, but at the same time, there are numerous other financial software systems that are easier to use and help you stay on track.
Additionally, cloud technology is ideal for handing business finances. This allows multiple trusted parties to access the information wherever they are. You'll also always have a backup in case your computer decides to stop working some day.
"With a business credit card, you can track finances and expenditures."
4. Obtain a credit card specifically for your business
Business purchases should be completely separate from your personal finances and getting your own business credit card could help you keep them split up. With a business credit card, you can track all your company's finances, purchases and expenditures on one line of credit that will prevent you from mixing up purchases with your personal finances. This will ultimately help you divide your business expenditures from personal funds and again, make tax season much easier to handle.
5. Get in touch with one of our financial experts
Starting a new business can be a demanding process and staying on track is not easy. However, talking to one of our business finance experts could help you keep your personal and business finances separated with a little professional help. There's no reason to go alone with your new business venture, and having a helping hand could get you started on the right foot.
For more information about how you can grow your business, contact Landmark Bank.
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