As an entrepreneur, it is essential to clearly separate your personal and business finances from the start. This is vital for accurately preparing your taxes and safeguarding your assets. Whether you are just starting out or seeking more effective ways to organize yourself, this article will guide you to set better habits for long-term financial health, wealth, and success.
1. Separate Bank Accounts
You should have a separate bank account for each business you own. Each business should have its own necessary accounts. Typically, you will start with a checking account. Over time, you may want to open additional accounts that are relevant to the growth of your company such as payroll dedicated accounts and savings accounts.
2. Separate Credit Cards
Your business should have its own credit card(s). This will help you build your business credit and allow you to grow. Building credit will help in the future for inquiries such as applying for a loan or taking governmental contracts (if applicable).
Early on, your business may not qualify for a credit card. If this is the case and you need one, we recommend dedicating a personal credit card in your name for 100% business use and do not mingle. This should be considered a temporary solution until your business qualifies for its own card.
3. Register the Business Properly
You must comply with all government regulations to register your business as a legitimate entity.
The most important step is to register for a valid Employer Identification Number (EIN)/tax ID. You will need this number to accurately file your taxes and to open your business bank account(s).
Other state and local regulations may apply, so you must stay informed about the requirements, such as filing your annual/biannual statement of information. If you are concerned about missing deadlines or need assistance in keeping track of these regulations, we recommend contacting a professional accountant.
4. Accurate & Detailed Records
Proper record-keeping is essential for maintaining your business records and to have valid financials ready for tax preparation. We recommend implementing bookkeeping from the beginning of your company’s early stages. If you need help with bookkeeping, we recommend hiring a professional bookkeeper which will maintain your records on a consistent basis.
Separating records is important to keep yourself organized to maintain the business vs personal boundary. Records may include receipts, invoices, contracts, tax documents etc. Good habits start from the beginning so ensure you have separate files organized from the start or begin now.
5. Salary or Draws
Do not mingle transfers between your business and personal accounts. If you would like to distribute a salary to yourself, we recommend speaking to a professional accountant to determine what the best method would be. The appropriate method correlates with how your business is set up. Draws, distributions, and payroll are methods you may use. The type of business created will determine how you can proceed with the best method.
6. Consult a Professional
Speaking with a professional tax advisor or accountant may be the best way to help you formulate a plan to better separate your business and personal finances.
The initial investment will yield significant returns in the future and ensure your assets are protected for long-term success.
Need help or would like to connect with a professional today? Contact us to speak to one of our friendly team members.