How to Keep Business and Personal Expenses Separate

Parnas Ghosh Parnas Ghosh
May 22, 2021 5 min read
How to Keep Business and Personal Expenses Separate

Financial record keeping is absolutely paramount irrespective of the size of the business. Typically, most newer businesses will have trouble keeping and maintaining accurate financial records. Self-employed and freelance work can be even trickier. This can quickly become an issue when it comes time to report taxes for the quarter or year. One major challenge that comes with smaller businesses is the separation of personal and business expenses. Business expenses can oftentimes be written off at tax time, and there are several free tax tools that can help with that. One of the easiest ways to keep expenses separated is to open a bank account separate from your personal account for accurate reporting of business expenses.

According to a survey, 82% of business fails due to poor cash-flow management. Business can grow well without technical hitches. Are you experiencing challenges in terms of keeping proper financial records? Here are some basic points that you need to consider How to keep Business and Personal Expenses Separate.

Keep Separate Accounts
Separate Personal and Business Receipts
Acquire business credit card
Establish a Business Budget
Notify Family on Business Status
Understand Business Expenses
Separate Home and Office Matters
Keep Record of Business Items Usage
Seek a Professional Financial Advice
Pay Yourself Worth Salary

Keep Separate Accounts

Personal and business accounts are two separate things. Each of them has got its own expenses. Separating accounts means you can measure each one’s independence. Reconciliation is easy by reviewing bank statements. Filing of taxes becomes a simple task.

Separate Personal and Business Receipts

It is definite that in both business and personal business, transactions will be made. It is important to sort and keep expenditure receipts separate. Financial accounting becomes very easy. When it is time for auditing your business, auditors will not bother with personal receipts. Priority will be given to business receipts hence saving time.

Acquire business credit card

Business Credit Card
Business Credit Card

Credit cards are very convenient. They keep you safe from carrying a lot of cash which is a security threat, especially to third world countries. Record keeping becomes efficient. Tracking of expenses is done by use of statements. Some credit cards give a summary of transactions yearly, therefore, saving time when filing returns. Withdrawal is done anytime when you are in need of urgent cash. They offer protection when purchasing. Credit card companies are ready and willing to take up disputes on your behalf. Enjoy low-interest rates and money is controlled effectively.

Establish a Business Budget

Always learn to stay within the limit. Never chuck money out of business aimlessly that you are sure you would be able to return. This situation can be avoided.  The shortfall of a business do occur and most of the time you get yourself surfacing using the personal money. Budgets ideally should be developed based on earnings of the current business.

Notify Family on Business Status

We stay with people that depend on us in so many ways. Therefore, finances both personal and business involve quite a number of people. Make sure you are at par with family members and speak the same language at all times as far as finance is concerned.

Understand Business Expenses

Understand Business Expenses
Understand Business Expenses

It is important to understand operating expenses of a business. This includes costs of insurance, business supplies, rates for the taxes, costs for rent, and costs for repairs. It is prohibited to take out money from a business for things like food and family entertainment. It doesn’t matter how you keep good records for this but this doesn’t count at all.

Separate Home and Office Matters

Home and office are two separate things. Even if you have created an office in your home, it does not warranty you to use business funds to cater to house utility bills. Costs can be shared between both lines.

Keep Record of Business Items Usage

Sometimes due to limited resources, we cannot afford to have separate resources for each. There are times that we are forced to use personal things to run business errands. The Proper log should be kept to track on the expenditure and share the relevant cost.

Seek a Professional Financial Advice

Financial Advice - Audit Report
Financial Advice - Audit Report

It does not mean we are stupid when we don’t understand some issues around us. Open up to a financial professional the moment you realize some areas are not okay. This is their area of the profession and is assured they will come up with a workable system to fix your issues.

Pay Yourself Worth Salary

Demands for life are many but we should not take out of business what we don’t deserve. The business will operate at a loss. It is easy to keep the proper budget for both personal and business expenditure hence proper financial accounting records.

Conclusion

Let us remain disciplined when operating a business. Maintaining proper records help business to run smoothly. Cash flow projection and statements are also put in an orderly manner for easy tracking. Hopefully, above ideas will help you to keep your business and personal expenses separate. Share this article with your friends and comment your thoughts.


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FAQs

How to Keep Business and Personal Expenses Separate?

Open a separate bank account and a credit/debit card for that account and it should be solely used for business expenses. Same goes with your personal account and plastic cards, that they should not be used for carrying out business expenses.

Why is it important to separate personal and business finances?

A significant reason to keep all personal and business finances and expenses separate are for tax and tax deductions.

How to separate business and personal expenses?

  • Obtain an EIN
  • Incorporate your business
  • Open a business bank account
  • Apply for a business credit card
  • Pay yourself a salary
  • Separate receipts
  • Understand the difference between personal and business expenses
  • Educate other members of your business

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