The Importance Of Keeping Your Business And Personal Finances Separate
Managing your finances is an essential part of running a successful business. Keeping your business and personal finances separate can make financial management easier and more effective. In this article, we’ll explore why it’s important to distinguish between the two and some practical tips to help you manage them effectively.
Why is it important to keep business and personal finances separate?
There are several benefits to keeping your business and personal finances separate, such as:
- Asset protection: Combining your personal and business funds can expose your personal assets to business liabilities. Keeping them separate can help protect your assets in case of legal issues.
- Tax benefits: Distinguishing between your business and personal expenses can help you claim tax deductions more accurately, potentially reducing your tax liability.
- Easier financial reporting: Separating your finances can make financial reporting more straightforward and manageable.
Tips for managing your business and personal finances
Here are some practical tips to help you keep your business and personal finances separate:
- Open a dedicated business banking account
Maintain a business bank account to keep your business and personal finances separate. It’s an easy way to differentiate your expenses clearly and definitively. Also, make sure to hold business and personal accounts with the same financial institution.
- Pay yourself a salary
Paying yourself a salary can help you manage your business cash flow more efficiently. Use accounting software to determine your salary based on profits, after taking taxes, fixed costs, and overheads into account. Adding yourself to the monthly payroll can help you keep track of your salary more effectively, making it easier to manage your finances.
- Keep track of business and personal expenses
In instances where you have to use your personal finances for company purposes, make sure to tag it as a business investment or loan through your banking app or online software in order to make sure your books stay balanced. Some accounting software offers automated expense tracking, which can be useful in keeping track of your expenses. Keeping thorough records can help you file an accurate tax return and provide detailed documentation in the event of a business audit.
- Manage shared expenses
When you make purchases that are used for both business and personal reasons, record the expense in both your personal and business accounts, and allocate the expense according to the percentage of use for each. Remember that you can only claim the amount used for business purposes.
By following these tips, you can make sure that you’re on track to meet your professional goals. If you need further assistance, consult with a financial advisor or accountant to help you manage your finances better. Pacific Finance Australia can put you in touch with our network of experts in the field. Contact your Pacific Finance Broker today on firstname.lastname@example.org or give us a call on 08 9321 2120.
DISCLAIMER: This information is for general information purposes only. The information contained herein does not constitute financial or professional advice or a recommendation. It has not been prepared with reference to your financial circumstances or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice as to whether or not this information is appropriate for you.