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Why Is It Important to Separate Your Business and Personal Finances?

When you run your own business, the line between what’s personal and what’s business-related can blur. Just consider the following scenarios:


  • You transfer money from your business bank account into your personal account

  • You purchase household items and business supplies within the same transaction 

  • You create a personal household budget based on the income you bring home from your business

Sound familiar? In all of these instances, your personal and business finances are intertwined. And why shouldn’t they be? Your business is probably more closely intertwined with your personal life than any job you ever had working for someone else. It’s natural that the line between your personal life and your business sometimes gets blurry.


But when it comes to finances, you’ve got to draw the line. As a successful small business owner, you need to keep them separately organized if you want to live with financial ease.


GET THE ULTIMATE FINANCIAL CLARITY GUIDE (FREE)
For entrepreneurs who want a better understanding of the financial side of their business without spending hours going down a google rabbit hole just to surface feeling confused, stressed & overwhelmed. If you're a small business owner who has ever worried that you're living beyond your means or felt unsure of how much you can spend, you need this guide.

​The strategies in this guide are based on the success I've seen with my clients. When you adjust your mindset and understand the financial side of your business, you're going to stress less and spend with ease!


Why Is It Important to Separate Your Business and Personal Finances?

Running a business takes a lot of work, and financial stress or confusion can distract you from important day-to-day tasks. Keeping your business and personal finances separate can provide ease in several areas of both business and life, including liability, taxes, and day-to-day organization.


LIABILITY

When you start any business, you take on some risk. But by legally separating yourself from your business entity, you can minimize the financial risk to your assets, including your personal savings, retirement savings, and investment accounts. Structuring your business as an LLC/PTY or corporation, for example, separates you and your assets from those of the business.


This means that if something happens and the business is at fault, you (and your personal assets) generally won’t be at risk if someone sues you (or at minimum are harder to get to with that extra layer of protection!). But if you mix business funds with personal funds—even accidentally—you risk losing the security you’ve built. Keeping your business finances and transactions separate from your personal finances is important for maintaining this security. 


TAXES

Maybe you tend to procrastinate reaching out to your accountant for tax planning advice, or perhaps you simply fear doing your taxes wrong. You might even feel shame around your finances when tax time forces you to take a closer look—no wonder taxes cause stress! Contact us at HM Accounting for tax planning advice


As a business owner, you’re responsible for paying income tax and self-employment tax/ PAYE. Separating your finances lets you clearly see your revenue and business expenses, which you’ll need to know when making estimated quarterly payments/provisional taxes and when filing your annual taxes. 


Separating business and personal finances makes tax-related tasks so much easier and you reduce the risk of missing important tax deductions to reduce your tax liability.


For entrepreneurs who want to easily track expenses (without stress) and be in-the-know about all the best practices that keep more money in your bank account — while less of it falls through the cracks. 

PROFITABILITY

Believe it or not, using separate accounts can help you to be more profitable. You see, business finance isn’t all about the debits and credits - there’s so much behaviorally induced about money that simply keeping separate accounts can help you make wiser financial decisions with increased clarity.


ORGANISATION

Finally, separating your finances makes life—both daily and at tax time—so much easier. With separate finances, business bookkeeping is more straightforward. You’ll have a clear view of how your business is doing. Being aware of your business’s profit and cash flow helps you make projections, know what you can invest in the business, and of course, pay yourself accordingly. 


When you know the intimate financial details about your business, you’re better able to make strategic decisions to grow your business profits, and managing your personal finances becomes much easier. Plus, a focused picture of both business and personal finances is an important step in building financial confidence.


Also, read these blog posts on bookkeeping for business owners:

I have designed two templates, with easy, actionable steps to implement your bookkeeping solution.

Template one includes a bookkeeping checklist (summarised) so you can always refer back to ensure you stay on track. I've also included a breakdown of each task with descriptions. It's as though you'll have your own bookkeeper with you through the entire process!

Template two dives into 12 detailed steps to organising your business finances.


How to Manage Both Business and Personal Finances 

It can be really tough to keep business and personal finances separate. After all, sometimes it feels like your life and your business are one and the same. But I promise, getting a firm grip on both your personal and business finances, understanding how they’re related, and keeping them separate will help you live with more ease and confidence. 


Also read this blog post - how to keep business and personal finances seperate


If you need assistance getting your personal and business finances in order, you might benefit from working with a financial coach. A financial business coach can help you make sense of your personal finances and your business finances, create a business budget, pay yourself, and ultimately, run your business with confidence. 


At HM Accounting, I help small business owners tackle business and personal finances. To see how we can help you and your business, email me at info@hmaccounting.online or simply schedule a free 30-minute Discovery Call on my calender - schedule here


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