It is quite common for business and personal expenses to get mixed up, especially with small businesses and start-ups. This is easy to do unless you have a good bookkeeping system right from the start and are scrupulous about keeping note of your finances.
You need a ‘10’ to give someone change and the business float doesn’t have one, so you take one out of your purse, wallet, pocket or wherever you keep your cash and use that. The printer needs ink, so you order from your personal online account. These are two common ways this muddle happens. Another is; if you buy something from the business you need to pay full price for it and put the money into the business account. Yes, you get it back at the end of the week, so it seems silly, but it is important for keeping your business finances straight. (You don’t necessarily need to put in the cash, a note for an ‘IOU’ will suffice in many cases.)
There are reasons why this is very important, and they are more serious than keeping the books right.
If your business has debts, a court may rule that there is not a clear line between your business and personal finances and rule that you, personally are liable for the debt. This could mean seizing your personal assets to pay it off. This is a serious matter, and one you can easily avoid.
Making a distinction between personal and business finances makes sorting out documents for tax purposes easier, and an accountant will probably charge less if everything is laid out clearly.
It also shows professionalism, and in some cases, the ink cartridge mentioned above for instance, could have been tax deductible, or cost trade price, had you paid with a business account, but not if you use your personal money.
How to keep Finances Separate
Open a business bank account and use it for business.
Open a business account on any web sites where you buy material for your business, or at least pay with the business credit card.
Keep careful note of any times money gets mixed, so if you use your own money to give change, put a note with the business cash saying ‘You Owe Me 10’.
If you are buying items from the same place for both personal and business use, ask for two receipts or buy them separately so you have business receipts that are only business related.
If you do not have an experienced accountant working full time, use a web site such as Probookkeeper. They help you with everything bookkeeping related, and have an app so you can use it yourself too. They will talk you through it and check you are using it correctly, so you aren’t left alone.
Knowing how to keep books in a professional and correct manner can be daunting, but by getting professional help, it becomes easy and quick, so it is worth getting in touch with someone before your financed become so jumbled it is hard to untangle them.