There’s a lot to learn during your first year of business, especially when it comes to finances. One mistake new business owners should always avoid making is mixing your personal finances with your business finances. This is a mistake that could cost them greatly when tax season comes around.
If you want to avoid a lawsuit then it’s best to take precaution with how you handle your finances. Keeping your personal finances and your business finances separate isn’t difficult, and these following steps will help you keep them apart.
Make Sure You Have A Seperate Business Entity
Once you start your business you will need to file for an Employer Identification Number (EIN). After you receive your EIN, you will need to establish a separate business entity. This could be something such LLC (limited liability corporation) or Ltd (limited company) to make your business official. Doing these two things is the first step you need to take in order to separate your business from your personal life.
Establishing a separate business entity is also a good way to protect your personal assets. If anything were to go wrong with your business in the future, this ensures that they can’t come after your personal property.
Have A Seperate Business Account
Business owners face enough stress during tax time. One thing they don’t need to add to their plates is trying to figure out which expenses were personal and which were business. This is why it’s necessary for keeping your finances separate from the begining. You have so much responsibility on your shoulders as a business owner, the last thing you need to deal with is seperating a year’s worth of expenses.
Get A Business Credit Card
You should never use your personal credit card for business expenses. Just like we mentioned with your bank account, seperating the transactions at tax time is a major pain. There’s one other reason that you need a seperate credit card as a business owner. Your business has its own credit score, having a business credit score gives you the opportunity to expand as your business grows over time.
Setting up a credit card for your business is a big step. Using a credit report api can give you accurate updates to your credit score, as well as advice on making good financial decisions. If you are a new business owner who isn’t very experienced in the finances department then the aid of a credit report api can be very beneficial.
Don’t Mix Reciepts
Out of habit, so many of us discard our receipts once we’ve made our purchase. You need to save every receipt from a business expense for tax season. Create a seperate area for business receipts, and store every one there. It will make your life so much easier when tax season arrives.
To avoid a future headache, make sure you never purchase a personal item on the same receipt as a business item.
Track Usage Of Personal Items For Business Use
The thing that most new business owners forget to do is to track their use of personal items when they are needed for business. If you have to make a run out of town in your personal car to pick up supplies, log the mileage and save the receipts. You will be able to write this item off for use when you do your taxes.
One Last Thing
One more thing that you can do to make sure your personal and business finances never get mixed up is to train your employees to make sure they are on the same page as you and can tell the difference between the two expenses.