Tips For Keeping Personal and Business Finances Separate
We talked about why keeping personal and business expenses separate is best here. But what are some best practices for helping you do so? Here are a few easy to implement changes that can help you keep your business separate from your personal finances and avoid the issues that mixing financial activities can bring.
Here's our top tips:
If you're not going to be making business purchases keep your business card at home or in the office
Have a dedicated business account from the start, many banks offer low cost small business accounts to get you started
Each business meal should have a legitimate business purpose, that may be getting meals for your employees, having lunch as you travel for work, etc. You should be able to write on the back of each receipt what business activity was involved, who the meal was with, and what was discussed
Your employees should provide receipts for anything they are bring reimbursed for to show that it is a business expense
Make sure you have a handle on your personal cash flow so you know when you will need to transfer funds to a personal account to cover personal expenses
It may be easiest to set an amount of business funds that you will pull out of the business each month for owner's drawings/pay or to set an amount of personal funds you will put into the business each month. These should be based on the phase your business is in and your personal and business budgets.
If you do make a personal purchase on a business account do not panic, provide your bookkeeper with the information that the charges are personal so they can be classified as such. If business expenses were paid via personal funds submit the receipt to your bookkeeper for bookkeeping and tax documentation.
Make sure all partners are on board for keeping business and personal separate. Create a policy to only pay business expenses with the business account to prevent questionable reimbursements
If you use personal assets such as a computer for business use consider purchasing one for business use only. For larger assets such as vehicles that the company cannot afford to purchase for business use only keep detailed documentation to support any deductions that you will be claiming. These include receipts for fuel and maintenance and detailed mileage records.