How to Separate Your Personal and Business Finances
This article is written by Robert Eekhoff, Head of content at GigZter. This post is for educational purposes only – for financial and tax advice related to your business specifically, it’s a good idea to work with a professional.
Certain things, like your personal and business finances, don’t go well together. Keeping those separate helps you reduce accounting problems and makes it easier to manage your finances.
Don’t know where to start? Let’s take a look at some easy ways to do it.
1. Put your business on the map
If you haven’t already, establish a separate legal entity for your business, such as an LLC, C Corp, or S Corp. The Small Business Administration provides tips on what structure may work for you, but it’s the best thing to do is get advice from a legal expert. You will also need to apply for an Employer Identification Number (EIN) on the IRS’s website. Luckily this will only take a few minutes. Establishing a separate legal entity for your business has tons of advantages, including (but not limited to) the ability to protect your personal assets from business debts, losses, and lawsuits.
2. Get a business debit or credit card
Opening a business checking account and using the debit/credit card associated with it allows you to stop using personal accounts for business transactions, and it’s an easy way to draw a clear line between personal and business expenses.
GigZter offers a small business debit card. It provides real-time access to your funds so you can access them as soon as your customers pay.
A business credit card might help you build stronger business credit scores as long as you pay everything on time. A strong business credit profile could boost your ‘’loan’’ power and help you qualify for small business loans with lower interest rates.
3. Open a business checking account
If you want to keep your personal and business finances separate, opening a checking account strictly for your business is easy. If you’re strict about using it (along with your business debit card) for business needs and business needs alone, then getting a clear and complete picture of these expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements. In the Gigzter App, you’ll also get access to a real-time overview of your income and expenses.
4. Pay yourself a salary
You’re your own boss, so make it official and pay yourself a salary (at least) every month from your business checking account. Transfer this to your personal checking account, and then behave as you would if you were working for someone else. That is, once the money runs out, tighten your belt and wait patiently for the next payday. Regarding personal needs, treat your business checking account and your business credit card like a former employer’s — don’t touch it.
5. Separate your receipts and keep them
What better way to demonstrate your commitment to keeping your personal and business expenses separate than by actually physically separating your respective receipts? Think of good old-fashioned folders or separate folders in your email for digital receipts. This simple step will help you sleep easier, knowing that you’re prepared if the IRS ever comes knocking.
6. Track shared expenses
One of the advantages of being a small business owner is that many business expenses are tax-deductible. Taking a prospective customer/prospective to lunch to talk things over? Stocking up on coffee for your employees? That’s deductible! At the same time, avoid the temptation to use the business card for personal needs.
You can ask any cashier to ring up purchases as separate transactions. Or you can use a business debit card, such as GigZter’s Debit Card, to separate everything. Not only will separating expenses make things easier for your accountant (or yourself) come tax season, but you also protect yourself by (1) keeping a spotless financial record and (2) continuing the keep-the-receipts-separate discipline that can save you so many headaches down the road as your company grows.
7. Keep track of when you use personal items for business purposes
We all wish we could drive a company car or/and fly a company jet. But for most small business owners, the car that gets you to the gym in the morning or to your next gig is also what gets you to that big convention in another state. The same is probably also true for your cellphone and any item you regularly use for personal and business purposes. Any expenditure that you can legally write off should be written off to save you money come tax season. Your tax advisor can help you figure out what’s deductible, and what’s not, and how to keep the right records.
8. Educate your employees and partners
You know the difference between a personal and business expense; now make sure that everyone involved in your business does, too. Get everybody on the same page.
At first, keeping things neat and tidy may not be easy. But even if you can work on a few of these tips in 2022, you’ll save both time and money during the next tax season, an audit, or even while looking for financing. Strong businesses grow through careful, incremental improvements, and learning to keep your personal and business finances separate is the perfect place to start.