When starting any kind of business, you need to effectively separate corporate and personal finances. Splitting these two allows you to keep accurate records of your company expenses. It also lets you take advantage of tax deductions, as you could easily identify and write off business expenses during the tax filing period.
Prevent your personal finances from commingling with your business profits by taking note of these five suggestions:
Open a Business Bank Account
If you’re depositing your business revenue in your personal bank account, now is the time to separate your funds. You don’t want to accidentally use your business profits allocated for employee salaries to pay off your home loans and other consumer debt. ; What you need is a business savings and checking account for your company profits.
With a dedicated corporate account, you could purchase office equipment, pay company bills, and issue refunds without dipping into your personal bank account.
Acquire a Business Credit Card
This banking product is an invaluable tool in keeping your business activities separate from your personal ones. It allows you to maintain an account exclusively for corporate spending.
A business credit card is also handy during tax season. If you’re going to use this card purely for company-related activities, you could easily account for business transactions simply by requesting a year-end summary from the bank.
Get an Employer ID Number (EIN)
An EIN is a unique nine-digit number given to business entities for identification purposes. You use your EIN for various purposes, such as:
- Applying for a Business Line of Credit
- Setting up Your Business Entity Type
- Filing the Income Tax Return of Your Business
The benefit of an EIN is that it safeguards your personal identity. Rather than provide your social security number (SSN) to a vendor or customer, you provide your EIN. Sharing your social security number freely increases your risk of becoming a victim of identity theft. Criminals, for instance, can use your SSN to apply for consumer credit under your name.
Apply for a DUNS Number
Equally important to an EIN is the Data Universal Numbering System (DUNS), a unique nine-digit number used to identify your business. A DUNS number allows you to build creditworthiness that’s separate from your personal credit profile. On top of that, it helps show credit grantors and businesses that your business operations are legitimate.
Give Yourself a Salary
A business owner’s salary is an effective way to create a boundary between your personal and business finances. The rule is simple: Write a check with a fixed amount from your corporate checking account to your personal savings account. Think of yourself as a hardworking employee working for someone else.
Paying yourself establishes when you could take money out of your company. This also prevents you from simply dipping into your business funds whenever you feel like it.
These five suggestions will help you draw a line between your personal and business finances. The separation between these two funds is something that successful business owners do. It also gives you structure as you focus on growing your company and making money.