In the same way it’s important to keep your professional and private lives separate, it’s also essential that as a business owner, you establish some effective practices that will enable you to keep your personal and business finances separate too. Like chalk and cheese, mixing the two together will make for a pretty ghastly combination that will cause disruption to your business as well as risky confusion for the tax man.
When you own your own business and are potentially investing a great deal of your personal cash into making it a success, it can be tricky to know where to draw the line but it’s a boundary you need to establish. Fine tuning and consolidating effective practices and good habits early on is the best way to ensure that you’re running a tight, tax-efficient ship so keeping these two entities separate from the start is highly recommended. However if you’re the owner of an established business and are feeling a little spooked after reading this, have no fear because it’s never too late to make a positive change.
Although it may initially seem like extra work and a waste of valuable time, keeping your accounts well organised will make it much easier to control your spending and see what you can conduct and claim for when it comes to tax season. This will help you avoid running into trouble with HMRC and ensure that you’re benefitting from anything you might be owed.
Cutting corners now will only lead to trouble further down the line so whether you’re a start-up entrepreneur of well-versed in the world of business, check out our tips on how to keep your business and personal finances separate.
Set up separate bank accounts – The most effective trick in the book is to set up separate bank accounts to pool your business and personal capital in entirely exclusive locations. Operating in this way is not only tax-smart and well-organised, it is a fool-proof way to ensure that your cash is being allocated appropriately and enable independent credit history for both accounts. Setting up separate accounts will also will also encourage you to habitually differentiate between the two to avoid the dreaded crossover and easily draw upon the respective bank statements when you are required to.
Keep separate bookkeeping accounts – As well as setting up separate bank accounts, it’s also a great idea to physically separate your business and personal bookkeeping systems too. This will help you stay clear and focused on your plan of action. When dipping in and out of the same money pot, it can be easy to become confused and unaware of what is being spent and where. Implementing this practice will make it much simpler to assess your finances as you go along and make for much more efficient filing at the end of the business year. Frantically scrambling to separate transactions and receipts when it comes to tax season is so easily avoided by taking advantage of this simple tool.
Set clear budgets and stick to them – You don’t need us to tell you how important thorough budgeting is when it comes to running and growing a successful business but we’re going to anyway. Without carefully considered and stringent budgeting, a business will likely go off track and end up in some financial trouble so setting clear targets and monetary boundaries is vital.
One of the main concerns when integrating business and personal finances is the blurring of budget lines that will likely occur in the process. However by complimenting your independent bank accounts and bookkeeping systems with separate budget plans, you can avoid any unnecessary confusion and ensure you aren’t leaving yourself or your business out of pocket. Sticking to these budgets will make it easy to be sure you aren’t investing too much of your own personal cash into the business and vice versa, ensure that you aren’t taking too much out of the company money pot.
Be sure to define any grey areas – Another tip we always impart to anybody asking our advice on this matter is to eliminate any risky grey areas by being sure on what qualifies as what when it comes to business and personal expenses. For example when you take a trip to the stationary store to stock up on supplies, you might pick up some new printer ink and paper and think it harmless to dip into this to replenish your personal resources at home. However, this is a bad habit that will mount up and cause trouble in the long run. Ask the cashier to run two separate transactions and provide you with two receipts that you can file in their separate accounts.
You need to be strict about these matters because the tax man most definitely will be so if you feel that you would benefit from a little expert guidance, it might be time to recruit the expertise of a qualified accountant.
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