How To Keep Your Personal Money Seperate From Llc Business Money
8 Easy Ways to Separate Your Personal and Business Finances
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This article is written by Jared Proctor, Head of Content at Nav. Remember, this post is for educational purposes only — for financial and tax advice related to your specific business, it's a good idea to work with a reputable professional.
Certain things don't mix well — like your personal finances and your business's. Keeping these things separate not only helps you reduce problems, it also greatly simplifies things and makes it easier to manage your finances.
Don't know where to start with separating out your personal and business finances? Let's look at some easy ways to do it.
1. Put your business on the map
If you haven't already, establish a separate legal entity for your business, such as an LLC, C Corp, or S Corp. The Small Business Administration has tips on what structure may work for you, but it's always best to get advice from a legal expert. You also need to apply for an Employer Identification Number (EIN) via the IRS's website. Don't worry, it only takes a few minutes. Establishing a separate legal entity for your business has many advantages, including the ability to protect your personal assets from business debts, losses, and lawsuits.
2. Get a business debit or credit card
Opening a business debit card or credit 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.
Square now offers a small business debit card. It provides real-time access to your Square Balance so you can access your funds as soon as you make a sale. Labels for business and personal expenses in your Square app also make it easy to track your business expenses and to keep them separate from your personal expenses. Learn more about Square Debit Card.
A business credit card may help you build stronger business credit scores, as long as you pay your bills on time. A strong business credit profile may boost your borrowing power and help you qualify for small business loans with lower interest rates. Read more about establishing business credit.
3. Open a business checking account
If you're serious about keeping your personal and business finances separate, opening a checking 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.
4. Pay yourself a salary
You're your own boss; make it official and write yourself a check each month from your business checking account. Transfer this to your personal checking account, and then behave as you would if you were working for someone else. That is, once the money runs out, tighten your belt and wait patiently for the next payday. Regarding personal needs, treat your business checking account and your business credit card as you'd treat a former employer's — hands off.
5. 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 sleep easier knowing that if the IRS ever comes knocking, you're prepared.
6. Track shared expenses
One advantage of being a small business owner is that many business expenses are tax deductible. Taking a prospective partner to a nice lunch to talk things over? Stocking up on coffee for your employees? Write it off. At the same time, avoid the temptation to use the business card for personal needs.
You can ask a cashier to ring up purchases as separate transactions every time. Or you can use a business debit card, such as Square Debit Card, that allows you to label your personal and business expenses. Not only will separating expenses make things easier for your accountant come tax time, but you also protect yourself by (1) keeping a spotless financial record and (2) continuing the keep-the-receipts-separate discipline that can save you so much headache down the road as your company grows.
7. 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 in another state. 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 write off should be written off to save you money come tax time. Your tax advisor can help you figure out what's deductible, what's not, and how to keep the right records.
8. 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. Get everybody on the same page, committed to the same goals. Staying disciplined is easier if others are doing it with you.
At first, it may not be easy to keep things neat and tidy. But even if you can work on a few of these tips in 2020, you'll save both time and money during the next tax season, an audit, or even while looking for financing. Strong businesses grow by careful, incremental improvements, and learning to keep your personal and business finances separate is the perfect place to start.
Learn more about Nav
Nav provides a free way for business owners to get their personal and business credit reports, as well as tools to help build business credit. Nav's marketplace saves business owners time by connecting them to credit cards and financing options based on their credit profile.
How To Keep Your Personal Money Seperate From Llc Business Money
Source: https://squareup.com/us/en/townsquare/8-easy-ways-to-separate-your-personal-and-business-finances
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