Small business owners should keep from intertwining business and family finances
for a number of reasons. First, mixing business and personal finance
records makes it harder to find data when you need to find it quickly.
When operating a business, sometimes it is imperative that you be able
to find statements and figures relating to your business easily.
Secondly, one of the more important reasons to distinguish between your
business and personal financial records is to make it simpler to have
tax documents prepared when they are due, correctly and on time.
Below are some tips on how to keep your business finance records separate from your personal family finance records.
Form an Official Business Entity
Consider
forming a limited liability company (LLC) or an S Corp for the business
entity. Review the possibilities with your financial planner, CPA,
lawyer and insurance agents to determine whether it is feasible. Go over
which entity would make the most sense to use. Be sure to understand
fully how the business will affect your financial plan and taxes. See
that adequate insurance coverage is purchased to protect the business
entity. Discuss with an attorney how an official business entity could
also provide a certain kind of legal liability protection against
lawsuits.
Open a Separate Checking Account
Once you
have decided whether or not to form an official business entity, open a
business checking account with your local bank. Check around to see
which banks offer the best perks, i.e., interest-bearing or interest
free. One of the key things that the IRS will review when determining if
a business is valid or simply a hobby, is if there are bank accounts in
place used specifically for business purposes.
Use Separate Accounting Systems
Having
separate accounting systems is crucial to divide business finances from
personal and family finances. For example, if you use Quicken for
business, consider using Microsoft Money or Quickbooks for your personal
accounts. Using two different systems is a smart tax advantage as well
as a way to more easily improve organizing and monitoring your finances.
This is because at year's end, your income and expenses will be
located in one place, to make record keeping and filing taxes a much
easier process. Attending to good record keeping throughout the year is
much better than trying to separate records in March or early April. If
you wait until the last minute, there is also a good chance for error
and inaccuracy that could hurt your profit and loss standing.
Obtain a Business Credit Card
Using
a credit card for your small business can make it much easier to track
expenditures with your bank. While lending requirements can be strictly
for small businesses, your local bank is a good place to start with an
application for a small business credit card. As with having a separate
checking account, a business credit card will assist greatly with record
keeping as well as provide documentation for the IRS as proof, should
you be audited for any reason.
How to Keep Your Family Finances Separate from Your Business Ones
