If you’re a small business owner or entrepreneur, then one of the most important pieces to your venture is your finances. With this comes the necessity to keep things as clear as possible, and one of the most crucially fundamental elements to maintaining clear financial records is keeping your personal and business finances separate.
This can be a difficult task that seems impossible at times, but with the right guideline it can become much easier and help simplify your tax filing, boost professionalism, and protect your assets.
Here are five tips for keeping your personal and business finances separate:
1. Open a Dedicated Business Account
The first step to keeping your personal and business finances separate is establishing a specific dedicated account for each. When opening a business account:
• Keep it for business transactions only.
• Choose a bank with lower fees.
• Avoid using this account for personal expenses.
• Review bank statements for consistent accuracy.
By following these steps in setting up your business account, you can establish a solid foundation for a more organized and efficient financial situation.
2. Establish a Clear Budget
With your accounts now set up, you can start building separate budgets for your personal and business finances and distinguish fixed and variable expenses for each budget. This will help you maintain a fluid and stable financial base.
Try keeping your spending balanced by setting realistic goals you can easily achieve and make it a habit to check your budgets every month to ensure stability and adjust as needed. You can also use budgeting tools and spreadsheets to help build a better alignment with your goals. If you have any questions, our expert team is always ready to help.
3. Pay Yourself a Salary
When filing your taxes, every dollar counts. It’s easy to overlook common deductions or not realize you can Now that your accounts and budgets are established, you may be wondering about paying yourself through dividends. While this has pros, such as flexibility, simplicity, and tax benefits, it can also lead to issues like irregular income and complexities in financial planning.
We advise paying yourself a salary based on your business income and personal needs. This ensures more clarity between your personal and business finances and makes bookkeeping and tax filing much less complicated.
Avoid withdrawing extra funds for personal use and reevaluate your salary periodically as your business grows.
4. Understand Tax Implications
As you’re managing your business and personal finances, it’s important to understand the few tax issues that may arise. Here are a few things to keep in mind:
• Avoid mixing personal and business expenses.
• Keep records of all business expenses to claim deductions.
• Only use your business account to pay business taxes.
• Look into tax obligations such as sole proprietorship and LLC.
These are just a few easy steps to avoid mistakes that might end up costing you money. We always recommend meeting with a tax professional who can help you comply with regulations.
5. Keep Business and Personal Assets Separate
It doesn’t end with your finances! It’s always a good idea to keep your business and personal assets separate as well.
• Register all business-owned assets under your business name.
• Be sure you use business insurance for any business assets.
• Keep a thorough inventory of all your business assets with a depreciation value.
• Consult a lawyer to make sure all your assets comply with legal standards.
Keeping your business and personal assets separate will play a major role in minimizing risks to your personal wealth while protecting your business.
The Faber Advantage
Balancing your personal and professional books might seem complicated, but you’re not alone. You can find support from one of our professional Licensed Insolvency Trustees (LIT). Contact us today, and you’ll speak directly with an LIT who will work with you to answer your questions.
