My number one advice to any business owner is to always keep business finances seperate from personal!
There are some things in life that go together well and others that definitely do not. Business and personal finances are in the category of items that should not be mixed. Although it may seem like a headache to keep them separate (who wants to manage all those bank accounts?) your life will be greatly simplified once you separate your personal and your business finances, especially your expenses.
Not only does it make things a lot easier for you and your accountant come tax time, but it also helps keep on top of how much money your business is spending and making. Here are some tips to keep your personal and your business expenses separate.
Set up a business bank account
Open up a business only bank account (spending + savings). There are plenty of free ones out there! This provides you with an easy way to not only keep your private and business expenses apart, it also gives you an easy way to track your expenses.
Make sure to use this account for ALL of your business transactions and don’t leave the house without your business bank card with you.
If you aren’t being intentional with your finances, you might forget to include that in your financial statements and end up reporting higher earnings than what you actually made. When you report higher earnings than what you actually made, you will pay more in taxes than you should have!
Give yourself a salary
Paying yourself is very important! Paying yourself a salary from your business creates a more formal boundary between your business finances and your personal finances.
By paying yourself a salary, you establish when and how you will take money out of your business, rather than just pulling from your business finances whenever you need to.
Keep logs of business use
If you regularly use personal items for work, such as your phone or car, you should try and keep track of the split. If you have a home office, use your personal vehicle to attend client meetings, or talk to customers on your personal phone, you need to take note of these scenarios.
Being able to track when you use personal items for business purposes will allow you to write off some or all of those expenses come tax season.
Treat your business like a business and it will PAY you like a business. Treat your business like a hobby and it will COST you like a hobby.