Why You Should Keep Your Business and Personal Finances Separateby Ronald Wolf Business Consultant
As a business owner, you have a responsibility to track your expenses and revenue. Keeping a record of all your business financial transaction is imperative to run a successful business. That way you will know what you need to focus on, and what to fix.
However, if you start mixing business and personal finances, you can quickly lose the account and create a lot of complications. Thus, it’s crucial that you separate these two right from the start and here is precisely why.
Gives you positive professional image
Even though you are the owner and employee of your business, you still have a professional image to uphold to. You can build a positive or negative one, by which the latter can cost you deals and clients. One of the ways to create a positive professional image is to keep business and personal finances separate.
For example, if you have the same account for business and personal purposes, your clients will have to pay services to you personally. That leaves a confusing impression of your company and you could face distrust and bad reviews.
Your business is not your hobby
Even if it started like a hobby or you are doing something you love, you should label it as a completely professional vocation you do for profits. Talking about how your hobby became your business is a nice origin story, but that doesn’t mean you should act that way as well. Separate financials show you off as a professional who loves what they do, and not an amateur who occasionally enjoys doing something.
Maintain your business identity
The way you act as a company’s owner will paint your business identity. Having one account is often seen as laziness and people feel uncomfortable working with such companies. This is because they want to see a professional behind the business, someone they can trust and depend on. For the public eye, you are the face of your business, so everything you do will reflect your company as well.
For example, if you behave inappropriately will certainly reflect the public opinion about your business, no matter how illogical it may be. So, separating personal and professional is better in any aspect, not just when it comes to finances.
Think about tax authorities
Tax is a serious matter and you have to make sure that all your reports and data are in order, as well as that you make all your payments on time. Additional, tax authorities need an accurate definition of your business so you wouldn’t experience any penalties for labeling it the wrong way. More importantly, if your personal and business finances are separate, they won’t see it as illegitimate or like you’re trying to scam them.
How you treat your business is how your clients believe you’ll treat them
If you want to receive investments and funding, you have to take good care of your finances. No matter where in the world you live in, the best accountants in Sydney, Los Angeles, Paris, Rio de Janeiro or London are available to you.
Your clients and investors don’t like to work with a one-man show, they want to feel special and that you can dedicate yourself to them with equal attention. If you don’t have separate accounts, and also do your own accounting, you won’t just come off as unprofessional but also untrustworthy.
You need to establish your business credit
Without the working capital, you can’t expand and grow your business. You will probably have to take loans in order to secure the capital, but that won’t be easy if you don’t separate business and personal accounts.
The creditors will assess your status and financial potential in order to approve your loan. Additionally, if your finances are not separate, you might end up signing as a guarantee for business loans with your personal name. This will make you responsible to pay off the debt if anything goes wrong or any debt is created by the business.
You can apply for a business credit card
Another great option you will have with separate accounts is to have a business credit card. You can use this strictly for business expenses and need to keep a record of every bill you paid for it. But it will stop you from any unnecessary expenses and even get you a tax deduction in some cases.
Gives credibility to a home business
Having a home business is nothing unusual today, but you still have to work hard at establishing yourself as a serious professional. The first step in doing so should be by separating your personal and business finances, since that way everyone else will do the same. Additionally, as a home office, you can use tax deductions and thus you have to have business credibility.
Business can be successful if you run it right. Besides being a great employer, you also have to know how to manage your finances to avoid debts and bankruptcy. One of the ways is to keep your business and personal finances separate so you can present your company as a professional and responsible entity.
Furthermore, by doing so, you will also have a higher credit score and draw more investors and clients to your business.
Created on Jul 30th 2018 02:39. Viewed 205 times.