If you’re a self-employed business person, you have a lot on your mind, a lot to do, and not a lot of time in which to do it.
That’s precisely why so many budding entrepreneurs neglect to separate their business and personal finances.
In the beginning, there may not be enough cash coming in to seem to warrant it. As the business starts to grow, old habits die hard — and now the extra time it would take to separate your business life from your personal life just seems to elude you. Then the time may come when you ask yourself: Why bother? The two are so tangled now that I wouldn’t know where to start.
Not good, say the experts. And for three good reasons. Liability, taxes, and the future of your business. If you haven’t clearly established yourself as a business, you’re likely to be liable for any missteps or mistakes, you run the chance of running afoul of the IRS, and you’re diminishing your chances of favorable bank financing that may be necessary to fuel your future business growth.
We know a businessman who travels with the cash advance from his company in one pants pocket, and his personal cash in the other. His receipts are separated accordingly throughout the trip. And he never mixes the two. That’s his way of separating business and personal finances — at least when he travels.
That may sound easy and cool, but he has a whole corporation behind him when he gets back to the office. He only has to keep track of his on-the-road expenses, not the day-to-day expenses of running an independent business like yours.
Ready to get started? Entrepreneur.com offers 4 simple tips to help you draw the line between business and personal when it comes to your finances.