Keeping your personal and business finances separate sounds logical but can be tricky if the lines between business and leisure become blurred while caught up in multitasking, responsibilities and work pressures. It is vital that, from the get go, you have taken measures to keep your business and personal accounts separate, not only to minimise complications, but also for how your business gets perceived in the corporate world.
There are many reasons why your business and personal accounts should be kept separate. For one, the challenge of filing tax returns. Imagine all the frustration and time spent sifting through your accounts trying to find business transactions to submit for tax? This leaves room for errors to be made and should you be looking for business funding, having wobbly, inconsistent reviews of your company’s finances isn’t going to help get you that loan.
Another big reason to keep your accounts separate is the legal consequences. A business is meant to be a separate legal entity; free-standing from you and your personal finances. Depending on how your business is structured, this may put your personal assets at risk. If a creditor were to act against you for an unpaid debt, and there is no distinction between your business and personal entities, they are in a better position to claim your personal assets.
Also consider your business credit. You will need to have a separate business credit profile if you want to secure larger business loans or create vendor lines of credit.
Having said this, we share some points on how to keep your business and personal accounts separate.
- Register your Business
Start by registering your company with the Companies and Intellectual Property Commission (CIPC) so that it is different to your personal account.
- Have a Business Bank Account and Credit Card
Avoid complications and confusion by keeping your business finances in a bank account that is separate to your personal accounts. This makes tax season less uncomfortable and creating financial reports easier. Having a business debit/credit card keeps business transactions and personal transactions separate so you can keep track of your funds and build up a robust credit score history which helps get your business loans and increases borrowing potential.
- Pay Yourself
Just as if you were employed by a company and receiving a salary, you should be paying yourself a salary that goes into your personal account from your business. It keeps the relationship between your business and personal accounts formal and defers you from dipping into your business account whenever you feel like it.
- Keep Track of Business Receipts and Expenses
If you are working from home, using a personal car for client meetings or a personal phone for work-related calls, then you should be keeping track of these as business expenses for Tax purposes. Similarly, keep any receipts for business-related purchases separate to personal purchases. This could be a receipt for a business lunch with clients. Should you find your business being audited, SARS will want to investigate your business’s paper trail so it’s in your best interest to get clued up on what qualifies as business expenses.
An entrepreneur who is serious about their business and wants to be perceived as professional and organised, will want to have a separate business entity. It shows that the business is not just a hobby and people will likely take it more seriously.
As you can see, keeping your personal and business finances separate is essential. Not only does it show a level of professionalism, but it makes the important tasks like TAX, legalities and receipt records less of a nightmare.
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