We’ve talked about the importance of separating your business from personal finances, but what are the steps you can take to do this? In this blog post, we talk about a few important things that you can do to draw a clear line between your business and personal finances.
1. Open a business bank account
Having a business bank account is one of the most essential ways to separate your business from your personal finances. It will help you see how much your business is bringing in and how much it's spending at a quick glance and will also help your case in an IRS audit. To open a business bank account, you must have a registered business and an Employer Identification Number (EIN) from the IRS.
2. Apply for a business credit card
Once you have a business bank account, you can apply for a business credit card. All your business purchases should be made on your business credit card or through your business bank account. Having a business credit card will also help you build credit for your business and reduce the risk of your business finances affecting your personal credit.
3. Keep business financial documents separate
Keep all of your receipts, bank statements, and other financial documents stored separately from your personal financial documents. This will make it easier when doing your bookkeeping, filing your taxes, and in case of an audit.
4. Record owner contributions and draws
Keeping business transactions from personal ones may not always be possible, and if this happens, it's important that you record these transactions properly to keep your books clean. If you pay for business expenses with personal funds or transfer money from a personal account into a business bank account, you will record this as an owner contribution. If you take money from your business for personal reasons, you will record this as an owner draw.
5. Hire a bookkeeper
If you haven’t already, hiring a bookkeeper is a great way to make sure you stay on top of your finances. They can make sure you're categorizing your transactions correctly, reconcile your accounts in a timely manner, and provide insights into how your business is performing.
At Summit Bookkeeping, we offer a wide range of bookkeeping services including journal entries, month-end close, bank and credit card reconciliation, financial reporting, and budgeting. Give us a call at (360) 756-5020 to learn more about our services!