Learn why treating your business as a separate entity should be your top priority when managing your money.
Managing your business finances can be complicated, more so if you’re doing it out of your personal account. Blurring the lines between your business and personal funds can put you at a disadvantage when it comes to certain tax benefits and can leave your personal assets and credit unprotected.
For these reasons and others, it’s important to keep your business and personal finances separate.
Many business owners choose to use a separate business account for their business finances to easily track expenses for tax purposes. These separate accounts allow you to keep accurate records, which is key to taking full advantage of all the possible tax deductions that may be available to you.
Also, if for any reason you’re audited by the IRS, you’ll save time and a significant amount of stress handing over business-only records.
Mixing business and personal finances creates personal liability. One of the most important steps you can take to protect yourself and separate your finances is to choose a business structure.
Whether a sole proprietorship, corporation, or an LLC, the business structure will dictate everything from your risk and liability to how the IRS will retrieve your business taxes. Do your research and take the time to discuss your options with an attorney, CPA, and financial planner.
Building Business Credit
Business credit is a major financial tool that’s used to help you qualify for loans and other forms of financing. It’s also an essential tool for building relationships with vendors and other business-to-business sellers. Overall, it’s an indicator of how healthy and reliable your business is financially.
Choosing your business structure, obtaining a federal Employer Identification Number (EIN), and opening business bank accounts in your legal business name are all ways to begin building business credit. Now you can request business credit in your company name from the three main reporting agencies – Equifax®, Experian™, and Dun & Bradstreet®.
The task of separating business and personal finances can seem overwhelming, but it’s necessary for the long run. Doing so sets your business up for tax advantages and even higher profit margins — all while reducing potential risk to your personal assets.