Separating Your Business and Personal Finances in 4 Easy Steps
As an entrepreneur, you’ve put so much of your income into your business that it’s hard to know where your company’s finances begin and your personal finances end. However, if you want to take advantage of tax breaks and keep your enterprise operating within its budget, you must keep these accounts separate. If you’re still using the same funds for business and personal expenses, take these steps now to divide your capital.
1. Understand Your Finances
Before you can create separate accounts for your different expenses, you need to understand what money belongs where. The best way to do this is to give yourself a salary. Since you own your business, you get to set your salary, but it shouldn’t be more than half of your net profits. Also, keep in mind how much you pay your employees when you determine your wages. Now that you have a salary, you know which money is yours to keep, and which is only for business purposes.
2. Create New Bank Accounts
To help you keep track of your monetary categories, create checking and savings accounts that are dedicated to your business. That way, when you need to spend money on your firm, you don’t have to calculate how much you need for personal bills. Depending on the bank you choose, you may need to deposit a large sum of money to qualify for a business account. Either wait until you have enough money saved to take this step or open another set of personal accounts in your name. That way, you can still collect interest and keep your business finances separate from your household budget.
3. Save Money Automatically
Most banks allow you to designate a percentage of your profits as savings each month. Those funds are automatically sent to your savings account. This helps if you struggle to save for disasters and major investments on your own and keeps you from using your personal savings to cover these costs.
4. Start a New Credit Card
Ask your bank about opening a new credit card for your business. This step protects your personal credit score and improves the credit history of your company while also increasing your chances of benefitting from credit rewards programs banks offer.
Now that your enterprise has been making a profit for a while, it’s time to get serious about separating your funds for personal and business use. Use these four steps to figure out and improve the state of your business finances.