Mixing up things does not always make a good combination or a compatible pair. Pairing should not be coercive, but it should be automatic. The same goes for personal needs and business needs. These two sectors are not meant to be mixed up. Finances are something that should always be kept separate. It will not perplex the situation but rather make it easier for the person to accordingly make decisions in his personal life and business life. Here are the tips that can help you in keeping your personal and business finances separate.
Personal And Business Finances
There involves a multi-step method for separating personal and business finances and they are as followed:
1. An Employer Identification Number Is A Must
It is the very first step to protecting personal assets by enrolling and getting an employer identification number i.e. EIN. This number can be used to start a business entity type, also business bank accounts need to create credit cards and also apply for business income tax returns or payroll tax returns.
2. Registration Of Business Entity
In order to keep the business and personal finances separate, it is essential to make a formal establishment of the business as a distinct legal entity. The business firms can be established as LLC (Limited Liability Corporation), C-corp (C corporation), or S-corp (S corporation ). These names can help to protect and keep personal assets safely.
3. Create a Business Bank Account
To figure out the distinction between business and personal finance, one needs to create a separate business bank account. There are two options either to open a savings account or a business checking account. It’s better to have a business checking account because it helps to contribute to the financial development of a company. It can also help in paying bills, depositing cash, collecting the invoice payment, buying equipment without only cash run operation, etc.
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4. A Business Credit Card
Business expenses and finances should not be a burden on the personal credit card. It should be managed separately in the business credit card. That’s why it is important to create a business credit card to know the losses and profits accordingly.
5. Pay Yourself
A formal boundary should be maintained between business finances and personal finances. It can be efficiently done if the person doing the business pays himself a salary and does the business.
6. Different Receipts
Never combine your business receipts with your personal receipts because it will create confusion. While doing auditing, if such receipts are not separated, then it will create trouble for the person. That’s why the business credit card and personal credit card should be kept separate.
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7. Line Should Be Maintained Between Both Business Life And Personal Life
A well-maintained distance and difference should be made between business and personal finances. Business should not be mixed with personal expenses. The burden of both things should not be given to each other. It should be dealt with, separately.
8. Identification Of Personal Items When Used For Business Purposes
Using personal things to complete business work or office work, then we need to take note of it for future references.
9. Educating Others Plays A Significant Role In The Growth Of The Business
It is the last and the most important step to separate business and personal finances and it also helps to make the business holders on the same row. It needs a team effort, that’s why it’s important to make sure that all people involved in a business should be educated enough to handle the business properly.
Personal finances and business finances should always be kept at one hand distance and they should not be mixed up as it may attract legal complications, personal asset exposure, tax problems, business lending problems, etc.
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10. Have Track Of Your Business Expenses And Keep Your Receipts
A good and proper financial record is very much important if you really want to separate your business and personal finances. You need to also monitor all the business expenses which will help in easy bookkeeping. Prefer business credit cards for business-related expenses. Keep a separate receipt for it.
11. Apply For Credit Under Your Company’s Name
When applying for credit with a supplier or vendor, use your company’s name and information on the credit application. This will help your business establish a credit history. The same goes for applying for a business loan or a line of credit from banks or lenders.
12. Put Yourself On Payroll
Don’t forget that you are also working for your business and paying yourself a salary is not only fair but necessary. You also have personal bills and obligations to take care of, and you wouldn’t want to make money from your business account to pay for your personal needs.
When you pay yourself a salary, you formally delineate between your personal and business finances —it can help you avoid using your business funds for personal expenses.
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