When setting up a business, you may opt to manage your personal and business finances under a single account. Although the idea seems reasonable and more manageable, it may expose your business or personal assets to financial pitfalls in the long run.
This is because a business should be handled as a separate entity and have a separate bank and accounting system.
What are the benefits of separating personal and business finances?
Enhance a Professional Outlook
Customers will have a formal payment system rather than your individual account. As a result, separating your finances enhances your business identity and portrays you as a serious and trustable business owner.
Distinguish Taxable and Non-taxable Income
Separating your finances has multiple tax benefits. First, it ensures you do not mix taxable and non-taxable income in one account. For instance, if you combine cash gifts from your family with business finances, you may pay more tax than you should.
It also comes in handy during auditing. A professional bookkeeper will help you prepare an accurate record of personal and business expenses so that the Internal Revenue Service only audits your business records.
Establish a Clear Business Credit
Sometimes, you will need a business loan to boost an existing business. Before then, your lender may require a solid record of your business credit and working capital. When you mix business and personal finances, banking agencies may find it difficult to determine your business credit and deny you a loan.
Protect Your Assets
Having a clear financial framework protects your assets against business liability. For instance, if a creditor files a lawsuit to retrieve your assets, you will likely lose personal finances if you mix them in your business.
Similarly, you may bear responsibility for the business liabilities if a client files a legal suit against your company and the court can not distinguish between your personal and business assets.
Save Business Time
Running separate accounts for business and personal finances helps you save on the time you would otherwise spend calculating your cash flow. In addition, you only need to retrieve financial records from the business account without extracting other records from your individual account.
Get in Touch With Us
The key to efficient business performance has separate accounts for individual and business expenses. A professional bookkeeper will help you plan your finances to have a seamless business experience.
Get in touch with us today to learn more about Bookkeeping Enterprises.
