People keep repeating this mantra of separating personal and business expenses all the time. This is crucial for smoother operation of business. However, the task is not that easy as it seems. Things tend to get mixed up and create a mess in the accounts section. Mixed up finance records prohibit someone to track the actual rate of growth and profit as well. That is why; this list contains few finance tips and techniques which might be of help to separate the finances of business and personal-
- EIN or Employer Identification Number:
Having an employer identification number is important if someone wants to differentiate personal and business expenses. EIN, which gets assigned to a particular company by IRS, has nine digits. This is unique and important for filing income tax for the company. To simplify, this is the social security number in the business world. Having assigned this number to the company helps to simplify things regarding separating finances.
- Establishing the separate business identity:
After having EIN, setting up the business as a different entity becomes pretty easier. Establishing an LLC helps the business get its own feet and makes the process for filing tax return much easier where things do not get mixed up with personal expenses. This helps the company gain legal armor.
- Separate bank account:
This is the most important thing and the primary thing to do in order to separate the business and personal finances. Having a business checking account for the sole purpose of the company is helpful. This ensures that the expenses made for the purpose of the business do not get mixed up with the personal expenses. Having a business checking account has other pros too- one can pay for the expenses made, buy things online and without any cash exchange.
- Credit card for business:
Using the personal credit card for random business expenses does not help with the aim of separating the finances. Having a separate credit card for business is helpful to resolve this problem. This helps to keep a different credit card score for solely business purpose as well.
- Write yourself a paycheck:
The habit of expenses changes after owning a business. People tend to mix up the finances and pull from the business fund from whenever necessary. This is an extremely bad habit for maintaining the health of the business. The problem can get solved however by simply writing oneself a paycheck. In this way, the owner gets a clear idea how much they can spend from the profits made every month.
- Separate receipts:
Storing the business and personal receipts in different places is important. This is important for filing for the tax at the end of the year. Having a different bank account and credit card however can help make this process a lot easier.
- Share this wisdom:
Finally, business is all about team work. Maintaining all these things alone is not enough. One needs to make sure so that all the stakeholders do so.
These are the golden finance tips that help differentiating the business and personal expenses.