As a small business owner, you may be so immersed in running your business that you feel you barely have time for a personal life, let alone time to manage your personal finances. But it’s a good idea to keep your personal finances separate from your business’s, especially if you are just starting out.
5 tips to keep your business finances separate
1. Open a business bank account
A business bank account can help keep your business-related transactions separate from your personal ones. This will help you stay better organized and you’ll spend less resources on bookkeeping. You may also get access to additional small business services from the bank.
2. Get a business credit card
A business credit card helps you build your business credit. Having strong business credit, by paying bills on time, shows potential lenders, like banks, that you’re reliable in paying back debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition.
3. Use accounting software
Accounting software or a bookkeeper can help you track and manage business transactions. It’s just like how you may track your personal spending using a budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition worksheet. Clear record keeping helps you closely monitor your income, expenses, and the financial health of your small business.
4. Pay yourself
If the financial situation of your business allows for it, establish a regular payment schedule from your business to your personal accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition. It can be a salary or dividendDividend Part of a company’s profits that it pays to shareholders in proportion to the total number of shares held. The Board of Directors sets the amount. For common shares, the amount varies. It may skip dividends if business is poor or the directors invest money in things like new equipment or buildings.+ read full definition, depending on taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition considerations and your business structure. This will allow for a formal transfer of funds from your business to your personal account.
5. Incorporate your small business
Depending on the size and nature of your business, incorporation may be an option. It can better protect your personal assets from creditors and lawsuits. There are also some tax advantages with incorporation.