Small business finance management is a tricky thing. If you’re a small business owner, your personal and business finances almost always blend together.
It makes sense. You’re just starting out, so there isn’t a clear line separating your personal and business lives.
For convenience reasons many small business owners tend to mix up personal and business finances but they soon find that as their business grows it becomes less of a convenience and more of a luggage.
Why you shouldn’t mix your personal and business finances
If you haven’t properly separated them, your personal assets can be vulnerable during a business lawsuit. You could also create a bad reputation with the IRD and your heaps of tangled financial data can stress you out.
Benefits of keeping personal and business finances separate
There are many benefits of separating personal and business finances that positively affect small business finance management. Let’s have a squiz.
Limited legal liabilities – Your personal assets will not be vulnerable in the case of a lawsuit or any other financial issue because your business is considered a separate entity.
Simplified taxes – Can easily calculate tax deductions on business expenses without having to sort through personal transactions.
Simpler bookkeeping – It’s easy to manage your business’s books and keep them organised.
Impress lenders – When getting loans, lenders pay attention to your financials so keeping a clear record of business transactions can leave a good impression.
Simplified cash flow tracking – Properly managed and tracked business cash flow is crucial to staying stable and profitable.
Efficient accounting process – Clearly recorded finances make the accounting process more efficient and makes it easier to make important decisions quick as.
You have peace of mind – No more constant navigating through confusing financial records to make crucial business decisions. All your business activities are laid out in front of you.
By outsourcing your accounting and finance functions you can easily receive these benefits with minimum effort on your part. Our Ebook explains in detail how outsourcing can help your small business. Drop your email address in the chat and we’ll send it to you for FREE.
Small business accounting advice – How to effectively separate personal and business finances
There are a few ways in which you can make sure that your personal and business finances won’t intermingle and cause confusion.
Incorporate your business – Register your business as a limited liability company which distinguishes it as a separate entity from its owner(s).
Open a checking account – Checking accounts allow you to order cheques with your business name, so that the transaction is with your business and not with you, personally.
Get a business credit/debit card – Use a separate credit/debit card for business transactions so that the money comes from your business budget and not your personal one.
Be your own employee – Act as if you too are an employee of your business. Deposit your personal income to your personal account at the end of each month like a “salary” and avoid dipping into your business’s profits until your next “payday”.
Set a budget for your business – Avoid going over this budget, because that will require you to dip into your personal finances. Stick to the budget and it’ll be good as gold.
Separate personal and business receipts – Keep your business receipts close to your workspace and away from your personal receipts. That way, when you’re working on your finances, the two won’t get mixed.
Keep track of using personal items for business use – If you use items like your personal car or mobile phone for business, track that usage separately without mingling it with personal use.
Make others aware – If you work with other employees or business partners, make them aware of these boundaries and ensure that they follow them as well.
We’ve got you – Top small business accounting in Auckland.
If managing both your personal finances and business finances is just a mare right now, don’t worry. We’ve got your back. In our Ebook we’ve mentioned in detail how your business can benefit from our services. Drop your email in the chat and we’ll send it to you for FREE.
Our highly qualified virtual accountants and bookkeepers can,
Track your expenses – Cutting-edge technology as well as tried and true techniques to keep track of your business expenses so that you will never need to dip into your personal finances.
Prepare and handle your budget – We will use industry standards and advanced financial tools to prepare and handle effective budgets for your business.
Maintain your receipts separately – We will handle and maintain your business receipts separately so that they don’t mix with your personal expenses.
Prepare your tax returns – Our qualified NZ tax experts will prepare your income tax returns as well as GST returns with industry standard technology and experience. We offer some of the top tax accountant services in NZ.
Manage your cash flow – Your cash inflow and cash outflow are important elements of your business finances. We’ve got the right expertise and experience to manage your cash flow, leaving no room for confusion and financial trouble.