Business and personal finances are two separate domains. They are different and separate in many ways, and therefore, they should be separated from one another. Mixing business and personal finances can indeed be a disastrous combination, mainly because it can create problems with your accounts and balances. Business is managed entirely differently, considering profit, loss, and multiple types of investment, while personal finances are handled oppositely. Here is why it is crucial to separate business and personal finances.
Save Time and Money
You will ultimately save a lot of time and money just by keeping business away and separate from personal finances. Keeping these two together, you will surely need an accountant to manage your combined account; hence, keeping these two separate will save you money and a lot of time and headaches.
In addition to this, you will have to purchase business accounting software if you keep your business accounts together with personal finances, as these software guide investors about ways to manage records. Did you know that keeping it separate also helps you to account for your expenses and your income in a more straightforward way? Indeed, having the right business credit cards, business accounts, and other similar matters helps you to keep your expenses clean. But why would you want to keep your expenses clean?
When it comes tax time, you are able to quickly go through all of these expenses and the income and see how the money went in and out. That helps you to quickly show how everything works for your business if you were ever to get audited by the IRS or any other tax agency in another country.
Your Professional Reputation and Image
Keeping the two accounts separate is also essential for your professional image. Your business should be treated professionally as you will often withdraw cash and have cards and checks as well, which should be in the name of your business rather than in your name. This will give a more professional look to your business. In addition to this, other business people or entrepreneurs perform business checking accounts through business names rather than personal names. Therefore, you should keep both accounts separate. If you want to be taken seriously and look like a legitimate business, especially when starting out, keep your personal finances out of it. It will be more attractive to potential investors and help you find partners to work with more easily. Hiring a professional accountant for your business finances can help your image as well. It will show that you make an effort to take charge of your finances and are serious about your business endeavor. This will pay off for your business in the long run.
Tax Reasons
Again, it is necessary to mention the value of segregation of finances in business and personal for taxes. Another reason why it is essential to keep your finances separate from your business is to avoid tax issues. Tax deductions are made much more accessible in combined business accounts. In addition to this, keeping both accounts combined can also result in an IRS audit. Hence, it is better to keep both accounts separate. If you mixed your personal finances in with your business finances, filing your taxes could become a headache very quickly. Having a detailed record of all your individual spending expenditures for your business will make taxes a breeze.
When starting a business, finances are a large part of making sure it is successful. Don’t take any risks and set up different accounts for all of your business’s financial needs. Keep all of your spending separate from your personal finances. This keeps you and your business safe from facing financial troubles down the road. Remember the above reasons for managing your business finances in the right way and your business should run smoothly.
Emma is a freelance writer based out of Boston, MA. She writes most often on health
and education. When not writing, she enjoys reading and watching film noir. She recommends looking into business checking accounts to keep your personal and business finances separate. Say hi on Twitter @EmmaSturgis2