One of the pitfalls most small business owners fall into, is integrating personal and business finances. This is further aggravated by businesses and owners using the same bank account.

You are not your business. You and your business have different identities and financial needs. It is important to understand that you and your business are two separate entities with different goals functioning for different purposes.

Golf has an easy way to explain this.  Think of yourself as the golf player. Your task is to get the ball in the hole. Then see your business as the golf course on which you play.

Keep the playing field separate from your personal life. Learn how to separate your personal finances from your business finances. This will help you manage your cash flow better. If you want to grow your business and get it back on track find out about our membership program and courses.

There is a famous quote from the Godfather worth remembering. “It’s not personal, it’s just business”.  This is so true for finances.

Integrating personal and business finances, becomes a fuzzy accounting nightmare which could land you in trouble. It could cost you a lot more to pay for the extra time an accountant has to spend to unravel everything and land you in hot water with Revenue Services.

7 EASY WAYS TO SEPARATE YOUR PERSONAL AND BUSINESS FINANCES

1. Give your business its own identity

If you haven’t already, establish a separate legal entity for your business such as a company. This is not only helpful for customers to know who you are and increase sales, it also protects your personal assets from business debts, losses, and lawsuits. In time and as the need arises you will need to register your business for Employees Tax and Value Added Tax amongst others, but even this should be seen as a benefit rather than a hindrance. It is an indication that your business is on a growth path and managed well.

2. Open a business transaction account and get a business debit card

If you’re serious about keeping your personal and business finances separate, opening a transaction account strictly for your business is a no-brainer. If you’re strict about using it (along with your business debit card) for business needs and business needs alone, then getting a clear and complete picture of these expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements.

Opening a business debit card allows you to stop using personal accounts for business transactions, and it’s an easy way to draw a clear line between personal and business expenses. A business debit card is also a sure way of avoiding unnecessary debt as you only spend what is available.

3. Pay yourself a salary

You’re your own boss; make it official and pay yourself a fixed salary each month, transferred electronically to your personal account. Then behave as you would if you were working for someone else. Treat your business account and your business debit card with the same respect as you would treat a former employer’s bank account — hands off.

4. Separate your receipts and keep them

What better way to demonstrate your commitment to keeping your personal and business expenses separate than by physically separating your respective receipts?  Think good old-fashioned folders, or separate folders in your email for digital receipts. This simple practice helps you to be prepared when Revenue Services ever comes knocking, you’re prepared.

5. Track shared expenses

Business expenses are tax deductible, so they can lower your taxable income and reduce the amount of tax you owe. However, personal expenses generally aren't considered tax write-offs against business income.

Not only will separating expenses make things easier for your accountant, but you also protect yourself by keeping a spotless financial record and continuing the keep-the-receipts-separate discipline that can save you a lot of headache down the road as your company grows.

6. Keep track of when you use personal items for business purposes

We all wish we could drive a company car and fly a company jet. But for most small business owners, the car that gets you to the gym in the morning is also what gets you to that big marketing convention. The same thing goes for your cellphone, and any item that you use regularly for both personal and business purposes. Any expenditure that you can legally allocated as an expense. Your tax advisor can tell you what is deductible and what not, and how to keep the right records.

7. Educate your employees and partners

You know the difference between a personal and business expense, now make sure that the other people involved in your business do, too. Put checks and balances in place to keep everyone honest and committed to the same goals and on the same page.