Starting a business is an exciting and scary time for many. As an Entrepreneur, it is vital to separate your personal finances from your business. Many business owners make the mistake of not keeping personal and business funds separate. This mistake will harm personal finances and credit, cause IRS Audits, and cost money in interest rates. Here are 5 ways to keep your personal and business finances separate.
1. Establish a business entity – An LLC, S Corp or C Corp will enable you to separate yourself legally from your business venture. It will also allow you to set up bank accounts, and help establish the foundation for building business credit.
2. Establish business bank accounts with your business entities – Once you have properly filed and structured your business entity, you will be able to open a business bank account. This process is simple but once your bank account is established, keeping business funds and personal funds separate becomes a lot easier to organize. You can apply for credit cards, and use business checks or debit cards to pay for business expenses. Business expenses will become easier to track and your tax deductions won’t fall through the cracks.
3. Pay yourself a salary – As a business owner, you are your own boss. Write yourself a check every two weeks or month from your business bank account. Treat your salary as if you were working for someone else. Don’t dip into your business account when funds are tight, wait for the next payday.
4. Build and develop your business credit profile – As a business owner, there are various forms of funding you will be able to obtain. Building and developing a business credit profile can be an amazing option to fund and grow your business. A properly established business credit score will open many doors such as 0-2% interest rates for up to 36 months. Business credit will create better cash flow so you aren’t bogging down your personal finances, harming personal credit, and will make sure you aren’t overpaying in interest rates on personal credit cards.
5. Keep track of when you use personal equipment for business – As a business owner, co-mingling your car, house, and other equipment will become inevitable. Track your miles and square footage of your home that you’re using for business and write those expenses off. Take advantage of the numerous tax advantages afforded to entrepreneurs.
Of course, as an entrepreneur starting out there will always be co-mingling of funds but make sure you are taking the necessary steps to build funding and keeping your personal and business finances separate. Set up your business entity, use business bank accounts, set up a business credit profile so you’re not using personal finances to fund your business.
If you need help or have questions about entity formation, business credit development, or how to write off your expenses, request a consultation. The advisors are PRIME are here to help you every step of the way.