Whether your business is just starting or has been running strong for years, there is one thing you should do right away if you haven’t already: separate your personal and business financials. It can be tempting to keep your money all in one place, but in reality it can open you up to trouble. The following suggestions will help you keep everything straight.
Keeping separate checking accounts for your personal and business funds is essential. According to Entrepreneur, opening a business account is a big step toward organizing your money, and it makes bookkeeping simpler. Certified financial planner Richard Salmen told the publication that during an audit, a business checking account is one of the factors that the IRS looks for to determine if your enterprise is really a business or merely a hobby.
Your business and personal accounts don’t even need to be with the same bank. QuickBooks points out that banks want your company as a client and will deliver plenty of perks to get your business. Find an institution with the extras that suit your needs and with good standing instead of just going with what you’re used to.
Make it official
If you are really committed to your business, Square recommends making it official by creating a legal entity. Upgrading your company to a C, S or Limited Liability Corporation will further separate your personal funds from your working money, protecting your personal credit and assets from anything going on in the business world.
Before you make your sole proprietorship or partnership into a corporation, consult a professional advisor and do all your homework. While it doesn’t take a long time to fill out the paperwork, there is a whole set of laws and other rules that govern corporations that you need to understand before taking the leap.
Cut yourself a check
Instead of digging into shop coffers to pay for your personal expenses, designate a salary for yourself and get a real paycheck. This is an official way to transfer money from your business checking account to your personal account without muddying the waters. From there, Square recommends living as if you were being paid by another person’s company and live within your means instead of just taking what you need from the company.
Get a business credit card
These days, credit cards are a common and easy way to plan for business expenses. To keep your business funds separate from your own money, a business credit card is a good idea. Even sole proprietorships can qualify for these specialized cards, which often offer perks like signup bonuses and reward rates higher than general consumer cards. If you get a business card, however, be sure to keep all of your personal purchases a mile away from it to make bookkeeping seamless, even if that means checking out at the store with two separate orders. Before you sign on the dotted line, learn all about the card you’re applying for to see if the card will affect your credit so you enter into the agreement with eyes wide open.
If all of this seems overwhelming, take your books and questions to see a small business advisor or a bookkeeper. It’s always best to do something right the first time before you get yourself into financial trouble.