Keeping Your Finances Separate
Updated: Feb 21, 2019
As a small business owner you’ve dedicated your life to your business. Your time, energy and money have all automatically become dedicated to the success of your business, and the lines of your personal life and your business-owner persona have been blurred.
But this doesn’t mean you should funnel all your personal finances into your business, or your businesses profits into your personal.
From the get-go you should establish two different accounts, a personal and a business account. Besides it being logical, clearly separating business finances and personal money with reduce any issues with the law. It will minimize your chance of a lawsuit, be much clearer to file yearly taxes, and allows for a clearer financial portfolio of your business’ gains or losses.
Apply for a Business ID (EIN) This is the first step before setting up a bank account. This identification number will protect your business and your personal information. It’s basically a social security number but for your business. It will also prove to the IRS that you are a legitimate operating business.
Open a business checking and savings account to fully separate your finances. It will allow you to clearly see what your revenue is, your profits, and your losses. Banks have different requirements for opening a business account, so make sure to research and find the one that best fits your wants and needs. The longer you wait to open a business account, the more difficult it will be in the future. Having the two separate accounts will allow you to claim assets. That means in case anything happens to your business, your personal assets can not be seized.
Opening a business credit card is needed when paying for business expenses. It will allow you to build up credit for you business.This will especially be helpful if you ever need a merchant cash advance or financing for equipment and materials.
Pay yourself salary, just because you run the business does not mean you shouldn’t get paid for your work, and for personal needs like applying for a mortgage or a car lease you need proof of employment history/salary records. You should be able to have a reportable salary and have the same benefits that your employee’s have. The amount you make should be based upon the revenue you have left after taxes and other business expenses have been accounted for.
Keep receipts to stay organized. For example, there may come a time when you use your personal card for a business expense, and having this receipt will clarify the purpose of that purchase, and any others in this format.