Should You Separate Your Business and Personal Finances?
It's important to keep your finances organised. If you run your own business, it's important to keep them separate in order to be more accountable for your expenses.
Here are several reasons why you should separate your business and personal finances.
1) Protect Your Business from Legal Complications
Separation of business and personal finances protects you from legal complications. If you're sued for a debt that you incurred personally, a court may force you to pay out of pocket, since you didn't set aside money for that purpose. This could make it difficult for you to meet your business expenses even when your business is profitable.
Separating your business and personal finances helps you avoid lawsuits. If someone sues your business, you'll be protected by your business's insurance. However, you won't have any additional protection if you have personally guaranteed any debts.
Business and personal debts are independent, so you could get sued personally if a court decides that you should pay personally. If your business can't pay the debt, you should be able to keep your home and other assets protected.
2) Make Bookkeeping Easier
Bookkeeping is a necessary part of running a business, but it can be tedious work. Keeping track of expenses and income from both your personal and business accounts can be difficult and time-consuming.
A separate business account can make your bookkeeping easier. Finances for the business are always in a single account, and you won't have to fill out additional paperwork for the business account.
3) Get Business Loans Faster
A business loan requires more paperwork than a personal loan. When you apply for a business loan, you'll need to submit a business plan, financial statements and several other documents.
Your business plan should include estimated income and expenses for the next 3-5 years. This helps lenders understand the risks involved in your business. Financial statements will allow lenders to see how well your business is currently performing.
If your personal finances are in disarray, lenders will be wary of approving your business loan. You should have a separate line of credit and credit card for your business to help lenders see your financial stability.
4) Be More Accountable
Separating your business and personal finances will help you be more accountable for your expenses. Since you'll have your own personal account and a business account, it's easier to distinguish how much money is spent on business expenses.
You'll be more conscious of your spending since you'll have to report each expense to two different parties. A separate business account can help you make good financial decisions that benefit both you and your company.
5) Boost Credibility
Separating business and personal finances will boost your business's credibility. Businesses that separate their finances from their personal finances are more likely to succeed.
Businesses that separate business from personal finances have a greater chance of surviving tough financial times. Finances are easier to manage when a business has separate accounts for business and personal expenses.
Separating your business and personal finances can help protect yourself from legal issues and boost your credibility. It's important to keep track of your finances carefully, whether you do it yourself or hire an accountant.
Looking for the best accountants in Gold Coast to help you stay on top of your bookkeeping? New Wave Accounting will keep your finances organised for you. Consult with us today to get started.