As a small business owner, your company may seem like it’s your entire life. When it comes to your finances, however, it’s important to keep your personal and business expenses separate. Not only will it make record keeping easier, but it can also shield you from personal liability.
Here’s why it’s so important to keep your expenses separate:
- Tax purposes: Few people enjoy paying taxes—and fewer still want to pay more than they owe. Keeping your business expenses separate makes it easier for your tax preparer to sort through your finances. They won’t have to waste time determining whether any given expense is for the business or your personal use. Because you’ll want to write off as much as possible, keeping separate accounts makes the entire process easier. You’re also less likely to be audited.
- Personal liability: Comingling your business and personal finances is a liability issue. When you first start out, you may find yourself personally guaranteeing loans, lines of credit, and leases. This can help when you’re building credit, but it’s not ideal. Should the company go under, you will be personally responsible for those funds. The goal is to move away from personal guarantees and keep your funds entirely separate.
- A professional image: Your professional image is critical to your business’s success. Keeping your personal finances separate is the key to being taken seriously. Obtaining bank accounts, credit, loans, and leases in your business’s name looks more professional than writing personal checks. In turn, your lenders and customers will rest assured that you’re trustworthy and savvy.
- Obtaining business credit: All businesses need credit. If yours is relatively new, lenders will likely assess your personal credit history. As your company becomes established, you’ll build business credit of your own. However, it’s crucial to separate your finances. Comingling your personal funds makes it far more difficult for lenders to determine your actual business income. You might be denied credit, or receive a far lower amount than you would otherwise.
- Reduce the possibility of mistakes: Finally, keeping your business and personal expenses separate reduces the possibility of financial mistakes. Without separate accounts and excellent records, you could miss potential tax write-offs and deductions, or fail to report sources of business income. These mistakes can result in financial loss and may trigger an audit. Avoid this by keeping separate accounts, and working with seasoned bookkeeping and tax preparation firm.
Starting a new business can be overwhelming, but it’s important to separate your finances from the beginning. Taking the time to set up separate business accounts will save you time, money, and stress later. It’s the simplest thing you can do to ensure your company’s success.
When you need assistance with bookkeeping, payroll, tax preparation, and QuickBooks assistance, MCG Solutions can help. Call us today to learn more about our services. Whether your business is brand new or well-established, we can help streamline your financial operations.