5 Benefits of Separating Personal and Business Finances to Know

Understanding the benefits of separating personal and business finances is very crucial to the success of every business. It helps the owners to maintain the independence of their businesses as legal entities as well as enhances the professional image of the business. So, this article explains the benefits of separating personal and business finances.

Benefits of Separating Personal and Business Finances

Why Separating personal and business finances important? The benefits of separating your personal and business finances include:

Tax Purpose

Keeping your personal and business finances separate provides tax benefits to the business through claiming necessary business tax deductions. Keeping a separate account for business will help you to track your business expenses for tax purposes. Keeping business information from personal information helps to ensure the timely filing of tax returns. Keeping both personal and business finances together may lead to auditing your business in both capacities.

Professional Image

Keeping your personal and business finances Separate will enhance the professional image of the business. Keeping a separate bank account for the business will present your business as a professional business when ask your business to pay to your business account instead of the personal bank account.

Personal liability

Another benefit of separating personal and business finances is the protection of personal liability. It helps you to differentiate yourself from business for personal security. However, entrepreneurs always agree to personal guarantees for credit facilities especially when the business is at a young age. You should focus on giving the lenders intention that your business is strong enough to pay back the loan.

Obtaining Business loans

Keeping separate personal and business finances will also help your business to obtain credit facilities. Keeping a separate business account helps the lenders to analyze your business while deciding whether to give the loan or not.

Better business decisions

Another benefit of separating personal and business finances is to make better and informed business decisions. Keeping a separate business account will help you to track your business expenses, incomes, assets, and capital. It also helps to provide required financial information that will help financial statement users to make well-informed business decisions.

Simple Guides on How to Separate Personal and Business Finances

Incorporation

The first step on how to separate personal and business finances is to incorporate your business as a limited liability corporation. Registering a business as a corporation will make your liability to be limited. This will protect personal assets from business losses, debt, and other business liabilities as well as provide tax benefits.

Open a business account

The next step on how to separate personal and business finances is to open an account for your business to keep your personal and business finances separate. Opening a business account will help you to monitor the business cash flow and ensure keeping adequate business records. Maintaining a business account also enhances the tracking of business finance. You can open an account with traditional banks or open an online account with virtual organizations such as Kudabank, Payoneer, and others

Obtain a business credit card

Obtaining a business credit card will help your business to build its credibility for business credit by building a credit history. Additionally, having a business card will allow paying for business expenses through the business credit card. This will help to avoid using personal business cards for business finances. It helps to separate personal credit card costs from business expenses which may be difficult if you are using the same card for both personal and business finances.

Hire a certified accountant

Accountants will help you to separate personal finance from business finance. This is because accountants must prepare and present proper books of account. Where personal finance gets complicated with business finance, the accountant ensures that personal finances are separated from the business finances to present true financial statements.

Placed yourself on salary

The next step on how to separate personal and business finances is to place yourself on a salary. Placing yourself on a salary will help you to draw a clear line between business profit and personal income. Additionally, this will confirm the legal entity of the business.

Conclusion

However, if you are a potential business owner or you are just starting your business, separating personal and business finances is very important to the success of your business in the long run. So, if you are still combining personal finances with business finances, you won’t enjoy business tax deductions. Understanding the importance of separating personal and business finances will help you to ensure timely filing of tax returns, present true financial statements, enjoy limited liability, and others.

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