Running and managing business expenses can be tricky. If you are finding it particularly challenging to control your personal and business expenses, this handy guide gives you a rundown of the best practices for keeping your personal and business funds separate.
Fully establish your business
By firmly getting your business on the map, it will be easier to define it and identify it as a separate entity to yourself when it comes to expenditure. Consider getting an LLC or C Corp.
- An LLC, or limited liability company structure is a flexible business structure that defines liability for company’s debts.
- A C Corp is a company where profits are taxed separately from its owners.
Find the best legal entity that works for you through research and guidance, and can protect your personal assets from any losses, lawsuits, and debts incurred by your business. Such a move can give your business legitimacy, as well.
Have a business credit card for business expenses
One of the easiest ways to manage your expenses and keep business and personal expenditure separate is through a business credit card. It’s a simple enough idea; every time you are spending money for the business, use the business credit card to conduct the transaction. Doing so can prevent your lines getting crossed and expenses becoming confused. This can be costly for both your time and money if you have to spend time later on sorting this out. Benefits of a business credit card include:
- Stopping your personal credit card getting caught up in company expenses
- Draws a clear line on how and where business money is spent
- Protects your personal credit
- Builds a stronger business credit score
- Enables you to qualify for and easily get business loans due to a strong credit score
- Establishes a sense of legitimacy with your business
Separate business accounts
A separate business accounts can help you differentiate when it comes to everyday spending. It will include accounts held with Amazon and PayPal, for example.
Separate bank accounts should also be made for your business. Tracking what goes in and out of this account can quickly provide you with information on your spending habits, and can help you manage anything from a commercial loan to considerable company expense. A business bank account makes it easy to track, and easier to manage. It is advised your business bank account is with a different bank. This will make it less tempting to transfer funds easily between accounts, for example.
Open a business checking account
A business checking account can help your business to manage taxes, and other money issues your company may be facing. Getting a clear understanding of expenditures will help when it comes to tax deadlines and payments. As well as managing taxes a checking account can make your business look more credible to customers.
Separate your receipts
It sounds simple, but keeping track of your receipts is an easy way to manage your expenses. Separate your respective receipts physically, so that when you are called upon to provide evidence of spending, you can do so without any concern of potential crossover.
“Beware of little expenses. A small leak will sink a great ship.”
– Benjamin Franklin
Keep track of personal items and time used for business purposes
You need to protect yourself financially when it comes to running a business. There will be occasions where there is a crossover. It could include driving a client to a meeting in your car, for example, or setting up a coffee with a prospective employee that you pay for. Occasionally it will be debatable whether this is a personal, or company expenditure. The best thing to do is keep track of it all, should a discussion occur later on about where money has been spent. Business travel and business calls are the factors that will most likely crop up and cause you to spend your personal money.
Educate employees and partners
As well as protecting yourself from the financial drain with company expenses, you should also protect your business partners and internal employees. It would not benefit your company culture for individuals to be caught out and using their personal finances to keep your business afloat. Instead, spend time educating everyone on company policy when it comes to private spending and the importance of separating this from business spending. Encourage people to be aware of the appropriacy of their spending too. This could cause you to trip up further down the line if you discover discrepancies too late in the game.
Use accounting software – takes pressure off
Where you can, use accounting software that is readily available nowadays to help you track your business’ expenses and income. You can also use this to track any acquisition loans or a commercial loan, for example. Make sure the software you are using is both reliable, credible and secure. Overall this can help take the pressure off and make it much easier to track your spending. Often, business expenses can be pushed to the back of the mind due to other concerns and priorities needing your time and attention. It is in these instances that accounting software can turn out to be your best friend.
Loan personal money as a last result
If you do find yourself in a position of needing financial assistance, it is best to avoid loaning personal money to your business as long as possible. Consider a loan, perhaps, which would be attainable if you have a credible business credit score. Be sure to clue yourself up on interest rates on business loans before you do so, but in general, this would be advised as opposed to using your own money. There are many financing options and routes that your business can go down; check this all out thoroughly before making a decision.
Define any middle ground
There will likely be areas within your business where personal and business spending may intertwine. Try and lay out a company policy that differentiates these areas of middle ground as early on as possible so that there is a clear idea across the board of what to do in these instances of spending. Personal vs. business can be a juggle, but by being aware, you will have won half the battle.