If you have a business it’s a good idea to keep your personal finances separate from those of your business. This helps you avoid personal liability regarding any debts or lawsuits connected to your business. It also simplifies your taxes and helps you better understand the state of your finances. There are several ways you can keep these two aspects of your life separate.
Set Up the Right Business Structure
Many small business owners start out with the legal designation of sole proprietorship. There are, however, alternatives that are more beneficial in certain ways. A Limited Liability Company or LLC lets you avoid personal liability for business debts. Another option is to set up an S Corporation. This is similar to a corporation but more favorable to small business owners. If you need help deciding which legal structure is best you may want to consult with an attorney.
Maintain Separate Financial Accounts
If you use the same bank account for your personal and business transactions it will be impossible to separate the two. That’s why one of your first steps is to open a business checking account. Each bank has its own requirements for opening a business account. If you can’t meet these requirements you could always open a second personal checking account.
Aside from business checking, it’s also wise to set up a business savings account. This gives you a safety net if you experience a slow period or emergency. It’s better to have a separate savings account for your business than to have to tap into your personal savings.
Apply For a Business Credit Card
A dedicated credit card for your business is another effective way to focus on your business finances without getting them confused with personal expenses. Use this business line of credit, credit card for any transactions related to your business. This is also a good way to start building your business credit.
Pay Yourself a Salary
When you own a business you either pay yourself a draw or salary. With a draw, you take money out of your business’s profits, as needed, for your personal expenses. This is typically how sole proprietors pay themselves. LLCs & S Corporations generally have the option. As far as budgeting and keeping finances separate, paying yourself a salary may have some advantages. One being, that there is a set amount so you and the business can budget around it. Second, taxes are automatically deducted from each paycheck rather than having to budget until tax time. As always, it’s best to consult your attorney and accountant to decide what is best for you.
Everyone has to take care of their personal finances. When you have a business, however, things become more complicated. Now, you also have to make the best decisions regarding your business finances. It can be easy to confuse the two, especially when you’re starting out. However, keeping them distinct is the best way to protect yourself from liability and avoid confusion.
How Riviera Finance Can Help Your Business
Cash flow is an issue that has a large impact on every business. One of the best ways to enhance your business’s cash flow is with invoice factoring, which lets you get paid sooner for your invoices. Rather than waiting for your clients to pay, you collect cash immediately from the factoring company. Riviera Finance is a leader in this field and helps all types of businesses with financial services.