Separate business and personal finances when starting a business to up your entrepreneur game.
When you work for yourself, you know your boss is brilliant. And starting a business - whether a one-person freelance video editing shop to a trendy bakery that employs ten - can be one of the most rewarding professional experiences of your life. But if you're an expert in your work, and not so much in small business finances, fret not: we've got some simple tips to set you up for success when you start your business, so you can focus on editing those wedding videos and/or baking those tasty apple tarts.
Separate your business and personal expenses, ideally from the start of your business building journey.
While it can be tempting to keep all your finances together, especially when there aren't too many biz expenses at the beginning, it won't be simpler down the road. From taxes to future investors to your own memory, keeping your business and personal expenses in a separate account or spreadsheet will help reduce financial angst in the future.
Why It WorksCome tax time, you're going to want a record of which expenses were for your business and which were just for you. Keeping them separate upfront will make April 15 a breeze and also set you on the right path to making sure you and your business get the max tax return. Even an elephant can forget whether that $20 charge was for a ream of printing paper or 10 bags of peanuts, so create a system now to eliminate forgetting later.
- Open a separate small business checking account. Many banks offer special small business accounts (with perks!) that can help you keep your business expenses separate from your personal ones. With a separate account, and a separate credit or debit card connected, you'll have a log of all your business's costs. Just be sure to use the right card when you're checking out, and ask for two separate transactions if you're mixing business with pleasure.
- Manually categorize your expense in a spreadsheet. If you'd rather not open a new account, do this the old school way: keep a spreadsheet and update it religiously. A simple workbook with the date, merchant, cost, and a quick description will save you incredible amounts of time come tax time. Plus, you want to keep clean records so you can maximize your tax deductions and therefore your potential tax refund.
- Find out if you need to file a separate tax return for your business. Depending on your type and size of small business, you might need to file a separate tax return for it. In other cases, your small business is just a separate section of your personal tax return. Either way, having separate records will come in handy.
You've got customers to take care of to keep your small business running smoothly. But behind the scenes, you need to be taking care of your finances to avoid a mess down the road. For the sake of the IRS, future investors, and your own sanity, separating small business accounting is an essential part of being the rockstar entrepreneur we know you are.