Five Tips to Separate Your Business and Personal Accounts in Herndon, VA
Business and personal finances must be separated. Mixing these finances will lead to confusion and possible losses. Using money interchangeable between business and personal purposes can make it hard for a Herndon, VA CPA to identify business expenses. So, how can you separate your business and personal finances? Here are tips to guide you:
Establish Separate Accounts
There should be separate accounts for your business and personal income and expenses. If you have an existing personal account that you are also using for your business, this is a serious mistake. Having your business and personal incomes stay in one place and making payments from here will make it hard to keep track of the specific incomes of your business. The best thing you can do is to determine the banks that offer the best business offerings. Then, open a business account in this bank. Also, get a new business credit card to look after primary business expenses separately.
You need to store your personal and business receipts in separate locations. This way, your accountant can easily look at the expenses and income of your business during tax season and financial audits. Handing over a file of mixed documents is just a waste of your time and your accountant’s time.
Set Separate Budgets
It is important to change how you spend. Ensure you only use business credit cards for all business-related transactions. Even if you have used up all your household budget for the month, ensure you do not use your business credit card for purchasing groceries. This will affect your business accounts. Establish separate budgets and make sure you stick to them.
As the owner of the business, you also have to pay yourself. Set a salary amount that is realistic enough for yourself. Transfer this amount to your personal account. Ensure you do the same whenever your company makes profits or when you give bonuses. You can use the money you make for your household budget.
Should you need new computers for your business, use your business account to pay for the purchase. Whenever you buy two items together for both personal and business use, get separate bills for every item. Similarly, you need to have separate bills for other inventories, electricity, and water. Do not pay household bills from your business accounts or vice versa. Otherwise, this will affect your budget and confuse your accountant.