When you run your own business, the line between what’s personal and what’s business-related can blur. 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.
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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.
Also read: Why is it important to separate your business and personal finances?
How Do You Keep Business and Personal Finances Separate?
If you haven’t been keeping your business and personal finances separate, the untangling process might feel like a bit of a headache. But taking a few simple actions can help you stay organized year-round.
USE SEPARATE BANK ACCOUNTS
Opening a designated business bank account is the easiest way (and a critical one) to keep your finances separate. Open an account for your business and use it for every business transaction. All revenue should be paid into the account and all business expenses should be paid out of the account. The business account should never be used to pay for personal expenses. If you really want to take things to the next level, use multiple accounts in your business for maximum clarity.
It sounds simple, and it is, but it makes all the difference. The alternative? Sifting through all your monthly bank statements and receipts to try and pick out your business expenses from the long list of personal transactions. Let’s be real: no one has time for that.
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.
DON’T FORGET TO PAY YOURSELF
It sounds obvious, doesn’t it? But a lot of business owners struggle with paying themselves consistently, fairly, or at all. It’s awfully tempting to just keep reinvesting in the business, but you need to have a strategy for paying yourself to avoid burnout. Your own wellbeing is also an investment in your business.
Remember how you need two separate bank accounts—one personal and one for business? Having these two accounts means that the money your business is earning is coming into your business account, and you won’t see any of it if you don’t pay yourself.
How and how much you pay yourself depends on a few things, including your business’s structure, its performance, and your personal needs. The important thing is you make it a habit to pay yourself, and adjust as needed.
Also read this blog post:
Salary VS Drawings - How to pay youself as a business owner, step by step guide
CREATE A BUDGET FOR EACH
You probably have strong feelings about the B-word—that’s right… Budgeting. While creating either a personal or business budget takes some effort on the front end, the payoff is huge. Knowing your income and expenses, reaching savings goals, and maybe even paying off debt are all benefits of a great budget.
Having two budgets—one for your business and one for your personal finances—helps you keep everything organized. If your business is your sole source of income, it’s going to play a heavy hand in your personal budget. And to make sure you’re reaching your personal and business goals, you need separate budgets to help get you there.
Also read these blog posts:
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.
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.
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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