Mixing work and our personal lives never ends up being a good thing in the long-run. Apart from the fear of having your two worlds collide, there’s also the issue of practicality. When setting up a business, it is considered wise to remove all and any traces of your personal life from the mix. This makes it easier down the line when the ol’ tax records are due and even before that. Separating these two makes it easier to track everything on either end and make sure that nothing gets buried in the paperwork.
Make it official
Simple as that, if separation is your goal, make your business official. Choosing what entity to go as is crucial because it affects your finances down the line and legal protection should you ever need it. Because of the gravity of such a step, it is paramount that you run this through your accountant, insurance agent(s) and your legal representative. Two options usually find themselves as a good fit for fresh companies, these are a limited liability company or LLC and an S corp. Both effectively function as pass-through tax entities, this means that taxes aren’t paid on a business level but passed-through to the tax returns of the company holders.
Open a separate account
When that’s out of the way, the next thing that is recommended for any potential business is to open a separate account. This makes sure that all of your business expenses are separated from your personal ones, making everything transparent and easier to grasp once taxes are due. Another benefit is having the IRS deem your business as valid, as opposed to classifying it as a hobby if you kept everything on personal accounts. The idea of separate accounts can be expanded upon, making the process even smoother – investing in several accounts for the business itself, making each transaction visible in more than one spot.
Use different software
This essentially ties into the previous idea. If you’re already focusing on separating the two, go the extra mile. It may be a hassle to get used to two different accounting systems, but it will grow into a huge quality of life improvement down the line. Ostracizing your accounts may seem a bit extreme, but it removes any possibility of having errors and mistakes pop up from trying to do your books last minute. Separate software leads to less opportunities for problems to arise and keeps you in good standing which is imperative for a business’ success.
Opt for a business credit card
This goes without saying, a business credit card is your best friend. Every expense, every transaction, every single solitary change in your finances is logged and kept. This may not seem like much, but having actual proof of a transaction is a godsend for anyone who’s had trouble with tracking finances. If you should ever be faced with an audit, these records will help back up your own logs and make the whole thing go a lot smoother. Should your business credit not be established enough to secure a card, work it out, at least try to use on of your personal ones for business to make it easier on yourself.
Consult professionals
Although mentioned above, it still deserves a segment of its own, consult a professional. No one likes to be the person asking for help, but this is our livelihoods we’re talking about. Seeking out professional help at the beginning is still cheaper than doing something wrong and have your business finances embody the concept of the domino effect. A plethora of companies like Darcy Bookkeeping & Business Services offer free quotes to help you get an idea of where your company’s currently at and where it could go. With a seasoned accountant on board, all of the aforementioned steps get kicked into high gear. Think of it as learning to ride a bike, we all started with training wheels.
Tread carefully
Even with all of these steps, the road will be difficult. By separating your accounts and keeping them that way, both sides of our lives are given equal opportunity to flourish without impeding the other. Make no mistake, business is all about playing the hand you’re dealt and seizing the opportunities you’re given. We may not be able to predict what’s coming over the horizon, but we sure can prepare for the worst. Just like any venture, a good plan will see us through and that is the point we’re trying to get across – be prepared.
