Keep personal and business finances separate
June 21, 2012
When starting out, many small business owners use their personal finances as a catalyst to boost company growth. While this may be a good idea initially, most experts believe this should not become a common practice. When personal and businesses finances are linked economically, either the company or the individual will most likely suffer.
The use of accounting software can greatly help leaders strengthen the wall between their personal finances and business affairs. A program could be purchased to be put to use primarily in the office space, while the individual could handle his or her own economic situation on a different machine.
Different accounts, cards
Though it may seem obvious, Entrepreneur Magazine explained, it is important that business owners set up separate bank accounts for the company and their own money. It could be easier to have the accounts linked, so that the leader could provide cash in the event of an emergency or oversight, but it is not a good practice.
The magazine reported owners should avoid the same tactic where credit cards are concerned. Each entity should have access to its own line of credit, because reviewing monthly statements could become confusing. This could also adversely affect both the business and the owner should an audit ever become necessary at tax time.
In keeping with isolating bank accounts and credit cards, all other financial aspects should be specified as well. Though no new owner wants to think along these lines, a leader has to think about how he or she would be affected if the company fails. Business Finance Coach explained that if accounts, taxes, lines of credit and other fiscal obligations are linked and the business flounders, the individual's credit and tax status could be affected for years.
The source noted if a firm and its owner's money were linked, the leader's personal finances would be threatened. If an owner uses his or her own robust line of credit to finance business ventures, when he or she go to makes large purchases, he or she may be denied loans.
Consult a professional
If a business leader is unsure about what aspects of a company should be included in his or her personal records and finances, he or she should consider consulting with an accounting professional before any binding action is taken.
American Express' Open Forum explained that financial experts are often trained on how to handle keeping the personal and business sides of finances separate, and which operations would be considered a company expense, among other factors.