The Importance of Separating Your Work and Business Finances

The Importance of Separating Your Work and Business Finances
  • Opening Intro -

    For some entrepreneurs, freelancers, or business people, business and personal finance lines tend to blur a little.

    But just as you don't want to mix work and play, so you shouldn't mix your finances with your business finances.

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You want to separate business and personal finances when starting a company. This separation will influence how you do business, the funding it receives, and how others see your business.

In addition, separating these finances can offer you many benefits, such as tax advantages and the ability to protect your assets.

Personal and Business Finances

Keep in mind that your company is an independent entity before the eyes of finance experts, lenders, and even the IRS. It is separate from you and your finances, and you should keep them separate for the following reasons.

Business Credit

When you detach yourself from your business finances, you can create a credit history for your business and improve your creditworthiness. In addition, it allows you to find working capital for your business.

Banks and lenders do not like to see business and personal incomes mixed, and it can make it difficult for you to establish business credit.

Of course, when you are first beginning, a bank will want to take a look at your personal credit score before it offers your business any type of credit, but over the course of a few months, your business will start to make its own credit history.

So, while you are in the initial stages of forming your business, take some time to research business checking accounts. Having an account specifically for business expenses will help you keep track of any transactions made for your company. As a result, you will be able to have more organized financial records.

Taxes

It is easier to keep track of expenses and pay taxes if you have your business finances in a separate account. Once you have a business account, keep track of your expenses and your bills to file your taxes when that time of year comes.

Then, keep all of your receipts and hand everything over to your accountant when the time comes.

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Less Personal Liability

By separating your finances, you have improved personal security. You don’t put your finances or property on the line should your business go under. Although you may have to offer a personal guarantee for a lease or loan, it won’t be necessary as your business credit rating improves.

It may be unavoidable in the beginning for you to pull in your finances to fund business ideas, projects, or ventures. But knowing that you should keep everything separate can help you organize your finances and help you build up your business’s credit.

In the future, it may also safeguard your assets and your funds in the event of a business financial disaster.

Image Credit: separating your work and business by envato.com

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