As a small business owner, you need to make sure your business expenses are kept entirely separate from your personal bank accounts. Unfortunately, having intertwined finances can make it challenging to get a clear view of your finances and create significant headaches during tax season. But what can you do to rectify the situation if you do find your accounts are intertwined? Here are five steps you can take now to help get back on track.
1. Take an Honest Look at Your Expenses: Stretching the definition of a business expense is one of the easiest ways to fall into bad habits with co-mingled finances. If you keep a log of purchases you’ve marked as a business expense, take a look back and be honest with yourself about whether that lunch with an old colleague was really a business lunch or if the gas you put in your car was only used to take you to meetings. And if you don’t already keep a log of your business expenses, starting now will help keep you on the straight and narrow going forward.
2. Read Up on Your State Business Laws: When it comes to business rules and regulations, staying on top of the latest information is a crucial step to making sure your tax returns and financial reporting are up to par. Obtaining the services of a sound financial advisor or wealth management firm will help keep your mind at ease by demonstrating a current and intimate knowledge of your local business and tax laws
3. Hire an Honest Accountant: Some less-than-reputable accountants and financial services companies will try to earn your business with promises of clever tricks to keep your tax liabilities low. But many of these tricks involve blurring the lines between your business and personal assets in ways that could expose you to legal troubles down the line. An accountant who is honest with you about your finances and the taxes you owe is a valued ally for your business.
4. Pay Yourself a Salary: One of the easiest ways to resist the temptation to use your business accounts as just another personal bank account is to pay yourself a fair and reasonable salary for your work. This way, the money you make from the business is an expected, regular expense that is easily tracked, and you get to enjoy the fruits of your labor without worrying.
5. Open Separate Accounts and Credit Cards for Your Business: While this may seem like obvious advice, sometimes the basics bear repeating. Think of your business as a separate entity with its own bills, expenses, and income. To keep your business separate, open a dedicated business checking account and secure dedicated business credit cards, just as you would encourage your teenaged child to do once they start working to earn money. You can think of your business as another child you are raising to practice fiscal responsibility.