Certain things don’t mix well — like your personal finances and your business’s. Keeping these things separate not only helps you reduce problems, it also greatly simplifies things and makes it easier to manage your finances.
Don’t know where to start with separating out your personal and business finances? Let’s look at some easy ways to do it.
1. Put your business on the map
If you haven’t already, establish a separate legal entity for your business, such as an LLC, C Corp, or S Corp. The Small Business Administration has tips on what structure may work for you, but it’s always best to get advice from a legal expert. You also need to apply for an Employer Identification Number (EIN) via the IRS’s website. Don’t worry, it only takes a few minutes. Establishing a separate legal entity for your business has many advantages, including the ability to protect your personal assets from business debts, losses, and lawsuits.
2. Get a business debit or credit card
Opening a business debit card or credit card allows you to stop using personal accounts for business transactions, and it’s an easy way to draw a clear line between personal and business expenses.
Square now offers a small business debit card. It provides real-time access to your Square Balance so you can access your funds as soon as you make a sale. Labels for business and personal expenses in your Square app also make it easy to track your business expenses and to keep them separate from your personal expenses. Learn more about Square Debit Card.
A business credit card may help you build stronger business credit scores, as long as you pay your bills on time. A strong business credit profile may boost your borrowing power and help you qualify for small business loans with lower interest rates. Read more about establishing business credit.
3. Open a business checking account
If you’re serious about keeping your personal and business finances separate, opening a checking account strictly for your business is a no-brainer. If you’re strict about using it (along with your business debit card) for business needs and business needs alone, then getting a clear and complete picture of these expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements.
4. Pay yourself a salary
You’re your own boss; make it official and write yourself a check each month from your business checking account. Transfer this to your personal checking account, and then behave as you would if you were working for someone else. That is, once the money runs out, tighten your belt and wait patiently for the next payday. Regarding personal needs, treat your business checking account and your business credit card as you’d treat a former employer’s — hands off.
5. Separate your receipts and keep them
