5 Tips for Separating Business and Personal Expenses for Small Businesses

Friday, 20. May 2022 | 0 Comments

Business is often fickle, and things do not necessarily always go as planned to achieve set targets and manage expenses. Small business owners may typically find two challenges – a shortage of funds and time. Hence, in carrying out your entrepreneurship or small business, it is often tempting to delve into personal finances in case of a fund shortage. It happens especially when an entrepreneur needs funds for operation purposes or growth plans and may face a funds crunch.

Please do not make it a habit! There needs to be a definite do-not-cross line. Two main reasons why you should separate your business and personal expenses are the following:

  1. Taxes: It is much easier to file returns when all your business expenditure is from one specific account. It would help if you had every expenditure receipt related to your business, from inventory purchase, office expenditure, and operational expenses when it is tax time. Keeping it all in one place helps. It helps your tax consultants accurately identify taxable income and provide you with the correct tax benefits where applicable.
  2. Personal security: Your personal finances are for your security as a financial backup. While you may tell yourself, ‘just this one time and I will replace it, it is not long after that, that it becomes a habit. Avoid diving into personal funds and consider the option only in times of extreme distress.

The question is, how does one go about the vital task of separating business and personal expenditure?

Tips for keeping business and personal expenses separate

Try making these changes to your business model:

  1. Have a separate business account.

The first step towards successfully separating finances is to open a business account. Enjoy the benefits of better record-keeping along with ease of financial tracking. A separate business account also lends your business much-needed authenticity.

  1. Get a business debit/credit card.

Apply for a separate business debit or credit card when you begin your venture. It will allow you to draw a strict line between business and personal accounts and spending. You can also avail of various perks that go with a business account. Additionally, you build a good business credit score that will stand you in good stead in the future.

  1. Allocate a budget for business expenditure.

Working within a budget is a habit that helps the business and personal expenditure. Plan ahead and make provisions for unforeseen expenses each month. It tells you where you stand and how much you can stretch yourself. Not having a budget means one may take the liberty of dipping into personal finances when the need arises, making it a bad habit in the long run.

Expenses

  1. Use invoice automation.

There are multiple digital tools that one can use to keep business and personal expenses separate. Invoice automation is one of them. It helps companies in numerous ways and enhances employee productivity. Invoicing becomes faster, more accurate, and produces a lot of data in the process. There is multiple software available for accounting purposes.

You can set up multiple accounts in accounting software to not mix up personal and business accounts. Modern invoice applications integrate with banks and sync your transactions too.

  1. Keep receipts in separate boxes.

Sometimes it pays to be old-fashioned. Keep separate boxes for business and personal accounts and get started. Physically separating receipts makes it much easier to manage funds for your own sake and tax purposes. For digitized receipts, create separate folders for personal and business accounts.

You will definitely learn to keep business and personal expenses safe with these tips. So, get ready to become a smart business owner and operate efficiently!

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