Fail to separate your personal and business finances, and things could get messy. It could lead to bookkeeping errors, a lack of customer trust and no asset protection if you get into financial difficulty. Drawing a line between your personal and business finances could help to make accounting easier, improve your credibility when taking customer payments and limit what bailiffs can seize if you get into severe arrears. This post outlines a few steps on how to separate your finances, and the advantage that each step has.
Step #1) Open a business bank account
Instead of putting all of your business income in a personal account, consider setting up a business account for all your income to go in. This allows you to set aside money for business expenses. You can then pay a salary out of your business account into your personal account. Having a separate business account can improve trust when providing bank details to clients, plus it makes accounting a lot easier. It’s important to compare business accounts at different banks – each one has different fees and rewards.
Step #2) Apply for a business credit card
Once you have a business bank account, you can then apply for a business credit card. You’ll then be able to pay business expenses with this card. Business credit cards come with different interest rates, limits and rewards, so it’s important to shop around to find the best card. Many business bank accounts will offer a credit card, but you can apply for other credit cards if you think they may be better. Paying all business transactions by card will make tracking all business payments easier so that you can more accurately predict your tax bill.
Step #3) Register as a limited company
When you register a company as a limited company, you turn your business into a separate legal entity. You are then not personally liable to pay for any business debts. This means that if your business gets into arrears and debt collectors come to seize assets, they can only seize items bought via your business account and not personal assets bought with your personal account. Registering as a limited company can also have tax advantages, but it also has additional costs.
Step #4) Keep clear financial business records
Keeping clear records of every business transaction helps you with accurate tax calculation and tax deductions. If you pay by card, you’ll have a digital record of everything, but you’ll need to keep hold of each statement. If you pay in cash, make sure to keep receipts.
Step #5) Use accounting software to simplify bookkeeping
Accounting software can help to track all your business transactions in one place. It also automatically calculated tax deductions for you, so that you don’t have to manually worry about all of this. There are quite a few different accounting applications to choose from that each have their different features and costs. Find a software plan that is suitable for your budget and your needs.
