Keeping Your Business and Personal Finances Separate

The separation of your personal and business finances is one of the core principles of financial management for small businesses, but many entrepreneurs still struggle with it. While it seems simple in principle, the actual segregation of your business expenses from your personal ones requires you to have the financial tools your business needs to support its own purchasing. That requires time and energy to set up. If you run a company that is essentially a one-person operation, the lines can be even harder to draw, since your business taxes are included on your personal income tax and you are likely to have expenses that overlap the two areas. Nonetheless, you need to make it a priority.

Best practices for separating finances start with a separate bank account for your company. When you’re using money for personal expenses, you can transfer it to your personal account. This allows you to better document when you are removing that money from the business versus when you are reinvesting it, and that’s one of the core pieces of data you need to track as you master financial management.

Once you’ve got the company’s money coming into its own bank account and payments going out of it, your business needs to establish its own credit. This is where access to unsecured business lines of credit and company credit cards will come in handy. Those credit lines help you establish a history and build your score, and they can handle the purchase of small pieces of equipment, like printers, as well as starting inventory and other basic needs. You’ll have to watch what you use them for, but over time, the reusable nature of them will also let you make short-term tactical decisions around opportunities.

Lastly, you need to begin structuring the company’s access to financing in a way that separates its debt for asset investment, debt for short-term opportunities like surprise orders or demand surges, and financing for cash flow management. If your business and personal finances are not separate, you won’t be able to achieve the level of control over your financial management that makes this degree of detail possible, and your business will suffer for it. On top of that, the lack of separation will wind up costing you in taxes and other opportunities.

Don’t wait to get your business finances under control. Talk to a commercial lender about your opportunities for business accounts and credit lines today, and start setting yourself up for success.

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