If you’re running a small business, you know how difficult keeping your personal and business finance separate can be. However, it’s an important thing to do as, otherwise, you won’t be able to know whether your small business is profitable or not. Luckily, there are quite a few ways you can keep your personal finances separate from your business. We came up with five of these that might be exactly what you’re looking for.
Get a business credit card
No matter what kind of business you’re running, you probably have to engage in plenty of routine transactions. This is where having a business credit card can be a great idea. A business credit card can be a useful tool when it comes to your company’s finances but it’ll also be the key to keeping your business finances separate from your personal spending activity. Ideally, you’ll be able to get a credit card in the name of your business. However, not every business can get one of these and if this is the case with your company, getting a personal credit card you’ll only use for business purposes is a good alternative. And since the credit card you’ll use for business purposes will have no other activity on it, creating a year-end summary for your business will be a lot easier.
Have a business bank account
One of the most effective ways to keep your personal and business finance separate is to start a business bank account. If you’re able to do so, you can have all of your business transactions go through that bank account. Moreover, your personal account will then be reserved for nothing but your personal financial activity. Just like with credit cards, a bank account can help you monitor your company’s financial activity better and help you make changes that will result in more profit. Also, with a business bank account, preparing financial statements and tax returns will be much easier. On top of this, if your company’s finances aren’t on the same bank account as your personal finances, it’ll make it less likely that you’ll use too much on your personal expenses and leave your company short on money.
Create a dedicated space for your company
When starting your own business, one of the biggest challenges you’re going to face will be finding the physical space for your business. This is an important thing to do, not only because it will separate your personal and business life, but also because it’ll help you separate your personal and business finances. Having an office or a shop means you’ll have a place where you can store all the important documentation for your company and make sure it doesn’t mix with your personal documentation. However, not every entrepreneur can afford setting up an office or shop. In a scenario like this, creating a separate space in your home is the most obvious solution. You can think about turning your attic or garage into your office and keep all of your company’s documentation there.
Get an employer ID number
If you’re looking for the simplest way out there that’ll help you separate your personal and business finances, getting an employer ID number (EIN) is something you just can’t go wrong with. There are websites you can use to apply for one of these in a matter of seconds. Once you get your EIN, you can use it solely for business purposes, and avoid exposing your own social security number. Even though social security number thefts don’t occur too often, it’s still worth trying to secure it. While doing so, you’ll also make sure your personal and business finances are separate, which is exactly what you’re aiming for. So, when providing a customer or vendor with your social security number, you can give them your EIN instead.
Register your business as a corporation or LLC
The way you register your business is also going to have a big effect on whether you’ll be able to separate your personal and business finances. What’s so great about registering your business as a corporation or LLC (Limited Liability Company) is that it can help you create a clear separation between you and your company. Moreover, this move can help you separate your personal tax obligations from your company’s tax obligations. Another important thing to mention is that if you set up your business as a corporation or LLC, in case someone presses legal charges against your business, you’ll be assured your personal assets are held separately. And since your company will be registered under a certain name, you’ll know exactly which transaction is personal and which transaction is business-related.
It can take a little bit of time and effort, but keeping your personal and business finances separate is an absolute must. Luckily, most of the ways for doing this are one-time events, meaning that once they’ve been set up, you’ll be able to focus solely on your operations.