- 11 October 2021
- Alex Penfield
How to Balance Your Personal and Small Business Finances
As a small business owner, the line between personal and professional can be hazy. After all, part of being an entrepreneur is committing yourself wholly to your business goals — physical space, time, money and more. However, when it comes to the finance side of things, it’s smart to try to keep personal and business finances as independent as possible. It may seem easier to just combine finances, especially in the short term, but mixing the two can create major fiscal headaches come tax time and can have an adverse effect on your budgeting, bottom line, and business growth.
Keeping personal and small business finances independent of one another requires up-front planning and strategy, but the task doesn’t have to be daunting. Even for the less fiscally inclined small business owner, this separation can be achieved by putting in place a few key policies and sticking to them. Don’t panic if your finances are currently combined — it’s never too late to start separating to help create better business habits. Check out the tips below for simple ways to help keep your professional finances separate and your personal sanity intact.
Check In on Checking
One of the simplest ways to create a sense of separation between your personal and small business finances is to designate distinct checking accounts for each entity. This will make the delineation between the two immediately easier to see and will give you a better picture for budgeting and tax purposes.
Go for Extra Credit
Get two separate credit cards — one for business and one for personal — and use them strictly for the corresponding expenses. This will make your life easier when it comes time to pay off each and allows you to see exactly how much you are spending in each silo.
Set a Salary (And Stick to It!)
When budgeting for both your personal and professional life, you’ll need to know how much you will earn. Designate the salary you will receive each month and write a check from your business account to your personal account for that amount. Try to stick to the same salary each month — this will keep things consistent and give you a clear sense of how to budget across both of your worlds.
Be Rigorous about Receipts
Receipts are one of the most important aspects to tracking when tax time rolls around. Create a system you’re comfortable with — either hard copy or digital — that keeps your expense receipts separate and organized.
Create Separate Spaces
In today’s work-from-home world, it can be especially difficult to keep separation between your personal and professional life. If you run your small business out of your home, try to carve out a physical space, however small, that is dedicated solely to your business entity. This can help keep important paperwork organized and business-specific tech such as phone lines separate from your personal space.
Categorize and Communicate
Delineate exactly who and what is deemed a business expense. Lunch with a potential client should be categorized as a business expense, while takeout dinner for the family after a long day will most likely fall into the personal category. Communicate your intentions with everyone who will be touching the business — employees, family members and friends — to avoid any confusion or awkwardness that may arise.
When it comes to finances, keeping your personal and business worlds independent is key to helping you stay organized, on track and set up for success. As a busy small business owner, it can be tempting to combine your expenses and just “settle up” at the end of the month, but taking the extra time to maintain a strong sense of church and state between your accounts will pay dividends for your business (and your personal sanity!) in the end.