Let’s be honest, admin is never fun. This is especially true when you are trying to get your business off the ground. In the case of finances however, admin today could make sure that your business isn’t in the ground tomorrow. Separating your business and personal finances is important to make sure that you can clearly identify your business and personal expenses come tax season, and allow you to track your business revenue so you can see how close you are to making that first million (or just how well you are doing).
Sureswipe suggests 5 easy ways to keep your finances separate
1. Keep separate accounts
The easiest way to differentiate between finances is to make sure you have separate accounts for your business and your personal use. This means separate cheque accounts but also any sundry accounts such as online shopping accounts or uber. This will make it easy to track your business expenses without the added complication of excluding personal ones. If for any reason you have to use your personal account for a business expense, make sure to refund yourself or at least keep a clear record of the transaction.
2. Keep receipts and documentation
The key to good business records is detailed documentation. This means keeping all business receipts and invoices, either electronically or in a file or folder, with clear descriptors of what the expenses were for.
3. Classify your expenses
It is easy to get confused between what constitutes a business or personal expense, particularly when you are a one man operation. Taking a friend out to lunch for instance, is a clear personal expense but what if the lunch results in a business opportunity? The simplest way to know where expenses fall is to interrogate whether the initial reason for the meeting is one that will benefit your business or if it is social. You can then bill the expense accordingly.
4. Give yourself a salary (and don't exceed it)
When the business is just getting started, entrepreneurs will often take money from the business based on their needs and not based on what the business can afford. The problem with using your business as your personal bank, is when things are going badly but you can no longer afford to give the business an injection. The best thing for you and your business is to set a salary for yourself and do not exceed it. If the business is doing well, you can start considering expanding to a second store or other investment and saving options.
5. Set a budget for the business
Setting a budget for your business based on anticipated needs is crucial to making sure your business does not end up hemorraging money on unnecessary expenses. It is very easy when you are handing out cash on an ad-hoc basis to lose track of how much you have actually spent. A business budget will make sure you know exactly how much you have spent and on what. Classify expenses based on their necessity to business success and set the budget accordingly. Forecasts are not set in stone but your business should not be too far out of the margin.