Importance of Separating Business and Personal Funds
While I genuinely understand the inconvenience and hassle of keeping your personal finances separate from your business.. it really is important.
Here’s why:
When you're starting your business, there are so many things you are learning and figuring out.
Most of which costs money and you are excitedly getting everything going so you just swipe your personal card, swear to yourself you'll remember to properly track it or that you'll figure it out later.
Then it's tax time and you're spending endless hours shifting through everything.
Ring any bells?
Hey no shame, I did that in the beginning when I was trying to figure out if I was helping clients on the side or going to put everything into being an entrepreneur back in 2018.
It happens and it's common.
You're passionately building your venture and quite honestly, doing the things that are outward facing tend to be a lot more enjoyable and rewarding than playing with receipts.
Or maybe you don't find value in spending the time and effort to keep the two separate. After all, it's all your money, right?!
Yes, it absolutely is all your money and I will always empower you to know that as the owner.
However, it is very important to keep your personal and business finances separate.
Makes bookkeeping easier
When your expenses are mixed, it can be difficult to keep track of what's what.. leading to errors, missed deductions and inconsistencies in your financial records. All of which are not setting you up for success or allowing you clarity/peace of mind come tax time or applying for loans.
Double whammy and one of those happens yearly, unfortunately; actively adding unnecessary stress to your plate.
By separating your finances, you'll make bookkeeping so simple that you might even enjoy doing it! (...okay, maybe just slightly projecting my feelings on that one, ha!)
Protects your personal assets
I don't believe in fear tactics but I do believe in being transparent about potential risks. It's my job ethically and morally to show you all the sides so you can be informed to make the best decision for your business.
That being said, if your business is sued or goes bankrupt, your personal assets are at risk.
When there is no clear line separating the two, it leaves your personal bank accounts, investments and any assets like homes/cars vulnerable.
Same thing applies if you were to be audited. If you're mixing business and personal, you're opening the door for a full audit of every aspect of your life if you don't keep your records straight and separate.
If you don't know that line, the IRS WILL push it to get a full picture and make decisions based off that. Which, is rarely in your best interest.
Decision time
Ohhhh this one's my favorite.
If you can't tell yet - I'm ALL about making your data work for you. It's all at your fingertips and it's all already customized to you.. so it's an incredible resource for you to use.
That is if it's separate and tracked regularly.
See, when you have a clear financial picture, you'll be able to make more informed decisions about how to grow and expand.
If it's all mixed than you won't be able to accurately asses your profitability, cash flow or expenses ← all literally the lifeline of your company.
Separating personal and business finances isn't just a matter of good record-keeping. It's truly a crucial step in protecting your personal assets and making informed decisions.
If you haven't already separated the two, now is the absolute best time to start! It's never too late, my friend!
Go open a bank account, most of which can be done online these days and start going through and moving over recurring transactions AND only using the business account for business things and personal account for personal things.
Your future self will thank you!
If you need any help with this feel free to email me at audrey@thegracefulepnny.com
Don’t forget to let me know what you think in the comments!