While keeping a toe over the borderline of business and personal life may look like fun sometimes, but the reality is that it’s an excellent idea to keep your business finances separate from personal funds. And there is an ample number of reasons why you should do this. Whether you own a business of corporation or LLC, it exists as a separate licensed company from you, and it needs to be handled for that way in the financial plans also.
In order to work smarter in the US, you need to be cautioned about commingling your funds because when you want to know about the correct image of your company investments, then you might unintentionally overlook the taxes or funds if your personal possessions are amalgamate with your business funds.
Moreover, keeping your business separate from the personal expenses can also help you in keeping your taxes on the right track with the perspective of making a legal distinction. Due to this, you don’t have to face any deductions just because of not organizing financing statements properly, especially for the track of purchases that accomplished as the tax write-off.
Thus, by not intermingling the funds will help you to not to fall in the state of depression or any bankruptcy. In addition to it, you won’t have the extra burden of filing through dozens of illegitimate debts, if you have proper company funding.
So, here are the handful of the great perks of the privileges of separating business and private funds and most importantly what are the risks of not doing so.
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Perils of Not Separating Business and Personal Finances
To create a unique identity, every startup, entrepreneur, and small-to-middle sized entities are doing their work in fast pace mode. As a matter of fact, it’s not always easy to stay organized with the financial sheets of the business, but by spending a little much of time in keeping up with the records and by intermitting the line between the company and personal funds separate year-round will help you in saving the time for the tax session.
Commingling funds is a pretty universally frowned upon business strategy in the US and leading the large scaled business to the worse consequences that will eventually affect the reputation of their services in the market. And If you continue to use your business funds as piggy banks, then it will be tough for you to show these withdrawals were for the business purposes to the IRS. So, try to resolve through your personal records at the tax timing. It is your sole duty to display your proof in the form of invoices or receipts that can support your claims for these deductions.
Another worst perils of not keeping away the business funds from personal assets could come in the form of a US lawsuit and judgements directed toward your entity. As lack of separation screams “hobby” to the IRS, and the USA IRS is quick to deny withdrawals and losses for the hobbies. And, in this event, you and your business might end up being personally liable for a devastating judgment in a lawsuit. Don’t take that risk!
The Easiest Ways to Keep Business and Personal Funds Separate
Opening a Bank Account
The first and foremost step is setting up the separate bank account for business purposes. So, start asking from the bank where you have personal account, if they grant any special offer or benefits to the old customers for opening a new business accounts. As, it is widely accepted fact that don’t be afraid to shop around for anything when you are in actual need of that thing. So, you have to do some extra work for your business reputation.
And eventually, you will come across with lots of banks to get you to open an business account with them. Due to high competition in the US banks, you might be able to negotiate more complimentary interest rates, lesser charges or a more significant business line of loans. However, it may take additional time, but getting the right business banking relationship will help your business in saving the money for the future uses.
By keeping separate Accounting Software
The second thing for keeping the business funds separate from personal assets that the use of manageable accounting software, for getting the proper track record of your company financial sheet. There is an ample number of accounting software tools online for the support of the small-scale organization in the US that have become more convenient and user-friendly over the last couples of years. So, be ready with your homework of the research and recognize which tools are the best access for your enterprise objectives.
But you must be cautioned about selecting the online accounting tools, whether it will be able to connect the business credit card, business checking statement and many other companies account to your sheets, which can quickly help in simplifying the process of reuniting all the transactions in one place.
The Other Advantages of Separating the Business Finance
Other than those that have been mentioned above, there are many other advantages of separating the Business Finances and they are:
The additional benefit of building a borderline between personal and business finances is that you can easily be able to develop a good credit score for the company. Moreover, you will be able to borrow money at the time of need by the name of your company. But you have to make sure that you loan the money to your business purposes, and you should log this money to your accounting software as a business loan. Because in most of the cases, the US sponsors want to inquire that whether your company is using the personal funds in order to grow the entity at the fast pace or not. Hence, keeping your business finances separate help you in revealing the moneylenders that your company is for real.
Blending the personal and business finances can develop unnecessary headaches, especially with the perspective of tax filing. But by keeping the borderline between personal and business finances will encourage you to feel calmer, especially at the time of company’s financial state. However, by retaining the financial sheets clean and up-to-date will also help you to feel more convinced and assured that your business expenses are valid and substantial. And more importantly, you don’t have any personal expenses muddling this situation anymore.
The best aid of separating the business account from personal is that when you make payments from your company account, as well as by lodging the payments into, will boost your business in creating more authorized and professional image with regards to your customers and suppliers. As a matter of the fact, that every investor wants to know that your business partner has the habit of swapping money back and forth between the personal and business accounts or not. Because commingling funds could create a false impression on the investors, which doesn’t exactly boost the belief of savvy investors.
With the advancement of technology in the globe, you can easily create your path for separating the business and personal finances with the help of technology-driven apps. This doesn’t mean that you cannot be able to invest in your business or recompose your contribution to the business, but you need to do this in a way that makes a sense for your business ideas and will help you in creating a road for the approval of the accountant for your company.
Muddling your business and personal finances always result in the worse consequences at the tax time. But, setting up clear boundary line between these expenses and consistently maintaining them is requisite and helps your business to the next level.
Sarath CP is an Internet Marketing Consultant and Growth Hacking Specialist.